The vanilla bean market’s rise since 2015 is rooted in a fragile, unstable economic model. Prices fall when the crop is plentiful and quality is high. Prices increase when the crop is short and quality is low. Why must we pay more for less quality? Limited competition, a labor-intensive crop, poorly compensated farmers, unbridled speculation and devastating weather make vanilla vulnerable to unquenchable demand, perverse incentives and dramatic price swings.

Historically, Madagascar is home to 65% of a 2MT world vanilla crop. Following the previous Vanilla Crisis, ample supply yielded prices in the $30–$80 kg range from 2004-14. Farmers, particularly in India, Indonesia and Uganda switched to more profitable crops over this period, planting the seeds of the current crisis. As yields shrank and global demand increased, prices began their ascent. To make matters worse, farmers were incentivized to pick beans early and adopt quick-curing methods to cash in on high prices even sooner. These practices further diminished output and quality, pushing prices to $500 kg.

Just when it was assumed the situation could not get any worse, a cyclone last March in Madagascar destroyed 20% of the crop and wreaked further havoc, sending prices to $600 kg!

Today, Madagascar claims 85% of the market, effectively the only vanilla producer that matters. What further distinguishes this Vanilla Crisis is an unrelenting demand for natural flavors by the world’s largest food producers. This new demand is fully baked-in and permanent. As a result, even after prices inevitably fall, a very “sticky” high price floor will prevail until competing countries reenter the market. The only practical and sustainable option for industrial users is to source natural alternatives to vanilla extract.