I have always wondered about the price of vanilla, because the tiny little bottles of vanilla extract are so expensive. If you've ever also wondered about the price of vanilla extract, or how it's produced, then you're in the right place! And if you've never wondered...well it's more interesting than you think!

Vanilla extract comes from vanilla beans, which are the fruit of vanilla orchids. Cultivating this plant is a very labor intensive job. Vanilla orchids grow as climbing vines, so they are tied to support trees. These support trees have to be carefully pruned so that the plant gets the right amount of sunlight, and the vines themselves need to be grown in loops, so that they don’t climb so high that the farmers can’t reach the flowers and beans.

It takes 3 or more years before a vanilla orchid will flower for the first time. When they flower, farmers have to pollinate each flower by hand. Then when the beans finally appear after successful pollination, those beans still have to stay on the vines for several months to mature. The whole time you’re waiting for the beans to mature, you still have to attend to the plant - mulching, pruning, and looping. When you finally get to harvest the beans you also have to do that by hand - picking each one when it’s perfectly mature. With all this time and attention it takes to get vanilla beans from vanilla orchids, it’s no wonder vanilla extract is costly.

But the cost has not stopped people from using vanilla. It’s in everything. There’s vanilla scented hand soap, vanilla flavored ice cream, vanilla in perfumes, etc etc. We spoke to Felix Buccellato from Custom Essence perfumery and he explained why vanilla is in everything (see quotes).

"...[I]t's one of these things that's so amenable to blending with other types of ingredients. It rounds out and smooths out the flavours."

Basically vanilla blends well with everything. It magnifies the flavors we want, and it masks the flavors we don’t want. For example, in chocolate, vanilla masks the natural bitterness. And in pop drinks, it magnifies the flavor. It does this without competing with the other flavors. People have been flavoring with vanilla for thousands of years.

"The Aztecs and Mayans used vanilla as a flavoring thousands of years ago. They were using it as a drink, very sophisticated. At that time, they would take vanilla and grind it up with chocolate and honey and corn - much in the same way Starbucks would make a frappuccino these days."

Felix was describing xocolatl.

"Vanilla has a very unique quality. The property of vanillin - the major component - has a very low odor threshold (the level at which it can be detected and still be recognized as vanillin or vanilla). Now the odor threshold of vanillin is 1.18 times 10^-12. That means a decimal point with 12 zeros in front of it."

Vanilla extract comes in little bottles, because it’s very potent - it’s odor threshold is so low that you can smell it in tiny tiny amounts. And this is really unusual because most chemicals that we can detect at such low thresholds are harmful to us, but vanilla is not. And not only can we detect it, we’re also drawn to it. So what effects the cost of this thing we’re so drawn to?

Madagascar is the world’s largest producer of vanilla beans. Madagascar has the right climate and it also has very low labor costs. For many years, the vanilla industry in Madagascar was regulated by the Madagascar government. The government set the price and decided the amounts of vanilla to allocate to different brokers and buyers. But the World Bank and the International Monetary Fund wanted the vanilla industry to operate as a free market. Because they had provided financial aid to Madagascar for many years, they were able to pressure the government to deregulate the vanilla industry. This important change happened in 1994.

So what was the result? After deregulation, the stockpile of vanilla beans could be sold. Because vanilla beans can be stored for years, there was a surplus of beans that had been stored. There was so much vanilla on the market that the price, of course, dropped. Over the years, the dropping prices discouraged farmers and they replaced vanilla with other crops. Eventually all the surplus was sold and the demand was once again greater than the supply. And there was a BIG demand for vanilla. It was an important ingredient for all the big brands, including Starbucks products, Coca Cola products, Nesquik, Dunkin Donuts, you name it! Oh, and there was a food trend for premium ice creams, like Haagen Dazs.

So in late 1999, the price of vanilla beans started to climb. Remember that it takes years of cultivation before a farmer can get the first harvest of vanilla beans from a new planting, so there wasn’t any way to increase the supply quickly...but people tried. Farmers started to grow vanilla orchids again. The price of vanilla was going up - things were looking good.

Unfortunately, because of the massive increase in price, many companies looked for alternatives to natural vanilla extract. So, in 2004, just as the new vines were at full production again, the prices crashed to about one tenth of the price they were the previous year. This cycle of mismatched supply and demand has continued to repeat itself. This is not a stable system.

But there is a solution out there. It’s a system that we all think we understand, but don’t really know much about. I’m talking about Fair Trade. Fair Trade means that disadvantaged producers from poor areas, with little power to negotiate their conditions of work, are given a fair price for their products, regardless of the fact that they have little leverage to negotiate prices with. It’s saying that “I know I could pay you less, because you need to make this sale to survive, but I’m going to choose to pay you a fair price”.

Mind you, the principles of Fair Trade are more complex than the picture we will be presenting here, but we’re going to keep it simple. So you might be asking, “what is a fair price?” Well, a fair price is a price that takes into account the cost of a decent standard of living for the producer, and the cost of sustainable production. This means that the price of vanilla should cover the money that needs to be reinvested into things like equipment and supplies, so that the farmer can continue cultivating vanilla over time. The Fair Trade price also includes a premium - this is money that goes to the community. The premium can be used on any improvements the community needs, such as school, wells, and medical facilities.

Vanilla is perfectly suited for Fair Trade. Almost all of the vanilla produced in the world is grown in developing countries by independent farmers. The farmers are from rural areas with only the most basic forms of transportation and communication tools. Because of the isolation, they don’t know if there is going to be a sudden boom in demand if, for example, a big brand company is launching a new product flavored with vanilla. With Fair Trade prices, the farmers can stick to growing vanilla and keep a steady production, instead of growing or replacing vanilla crops depending on prices. In turn, this will stabilize the global supply of vanilla. No more rise and crash in prices and products. Fair Trade vanilla seems like a win for all.

Special Thanks to Our Interviewees:

Felix Buccellato of Custom Essence
Richard J. Brownell