“From a commercial economic point of view...vanilla has gone from being in an under supply situation [between] 2014 to 2019. Then things evened out and we returned to an equilibrium situation and unfortunately, today, we’re very much in an over supply situation,” Todd explained.
The higher supply has created “a lot of hardships for small holders all over the world, particularly in Madagascar,” he added.
Madagascar is the world’s largest producer of vanilla, which can be lucrative when demand is high; however, with the lack of cash crop options during periods of over supply, “they’re generally facing economic headwinds,” Henry said.
Todd cites the risk of recession as one of the leading economic factors that will determine demand for the following year.
“As you would expect, that makes a lot of CPG companies very conservative in their forecasts of what they would like to buy. So all of this adds up to pressure on smallholders not just in Madagascar, but in all producing origins,” he said.
'make sure that growers are getting as much of that price as possible'
The company works directly with 1,300 growers in Madagascar across 11 certified Fairtrade and organic cooperatives which produce more than 90 tons of exportable vanilla annually. Virginia Dare Madagascar is a staff of 200 including 24 extension agents, which is an “excellent ratio as this means roughly one agent for 54 farmers,” Todd noted. None of the coops require exclusivity with Virginia Dare, which Todd notes is a rather unique arrangement.
“To have those certifications, you have to have a perfectly traceable and transparent supply chain as a baseline level. In addition to that, growers can get a premium for their product and getting the certification processes in place, that’s something Virginia Dare has sponsored and done for those coops—so that’s one way to get more money in their pockets," he said.
Without intermediaries, farmers are able to profit off the international price, “and that’s certainly sustainable because when it comes to conventional vanilla, which doesn’t have a minimum price,” Todd added.
He elaborated, “What’s sustainable in a market is to look at the supply and demand and say here’s the international price, put in place strategies to make sure that growers are getting as much of that price as possible without necessarily asking buyers at the other end to pay a premium because they can’t necessarily do that year in, year out every single year."
Building entrepreneurialism and financial independence
For growers living in remote villages, a lack of infrastructure will inhibit communities from establishing tools to survive when vanilla prices are low. Virginia Dare sponsors a series of 16 Village Savings and Loan Associations (VSLA), which are “basically like proxy banks out in the bush,” Todd explained.
Further, roughly 38% of women involved in Virginia Dare’s VSLA are primary decision makers about or signatories to vanilla contracts in its programs, which is double the regional average in Madagascar, Todd noted.
“They all contribute a certain amount of money to what’s essentially [petty cash] and a safe. We give them training on how to give out loans in their own community,” which lends itself to teaching the community about entrepreneurialism.
“And that becomes about giving microcredit for people to start other businesses and that’s super important particularly at a time when vanilla prices are low,” he added.
By building other businesses outside of vanilla, Todd said that growers can still continue growing vanilla rather than quit which “just creates even more volatility…and decreases demand—which consumer packaged goods companies generally avoid."
“We want to try to enact strategies that are going to tamp down market volatility and getting people to stay in the product is certainly important,” he added.
This prevents vanilla from becoming a “hero crop,” which Todd explained is detrimental for the environment and to the growers.
“We don’t want our growers only growing vanilla. It’s not green. It puts them at economic peril because it makes them hostage to the vagaries of a natural market. I think that reflects our ethos that people should not only be invested in vanilla,” he said of Virginia Dare’s additional agroforestry initiatives (i.e. intercropping with food and cash crops) to help mitigate market adversity through its partnership with the Duke Lemur Centre and CURSA University (Centre Universitaire Régional de la SAVA).
Todd notes that for growers to earn a decent livelihood, they must make roughly $20 a kilo, a Fair Trade price. But if the price falls lower, which he expects it to in 2024, there is no clear cut answer due to competition law, in addition to whether or not companies will choose to migrate to Fair Trade or other certifications to ensure smallholders are able to succeed during trying economic times.
“So the conundrum for the industry is going to be ‘how do I lend support to small holders and give them the best possible price that I can, while making sure that I remain competitive?’ Because I might be wiling to pay a premium to my smallholders but are my competitors going to do the same?”