Many vanilla farmers must feel a little like the the foolish peasant who killed the goose that laid golden eggs for him. As vanilla prices skyrocketed one season, peasants everywhere in South India took to it in a big way, even abandoning their rich traditional crops, only to be rudely shocked as market prices for the spicy bean took a beating the following season.
During the 2002-03 growing season, it was hailed as the magic plant that would bring instant riches, as the market price of the raw beans reached as high as Rs.3850 a kilogram. Only the previous season, the same beans would have fetched around Rs.130 a kg. This fantastic rise in prices was fuelled by a sudden increase in international demand, following the near-total failure of the 2001 vanilla crop in Madagascar, one of its prime growing regions. With supplies short, the international buyers who have a monopoly over extraction of vanilla flavours from dry beans, sent their agents scurrying all over the South and South-East Asian countries, widely known for their variety of spices.
In India, vanilla is grown in the lush green tropical lands of South India, mainly in Kerala and the Nilgiri region of Tamilnadu and Karnataka. With the spike in prices, thousands of small and medium farmers completely shifted to vanilla as a monocrop, abandoning their traditional varieties of crops like rubber, coconut, cocoa, tea and coffee, hoping to reap a rich harvest. This collective shift to the vanilla bandwagon was not confined only to growers. There were many banks, including a number of pubic sector banks, who abandoned all caution and pumped in huge amounts of money to the vanilla business, handing over massive loans as advance to the growers who needed cash to cut off their ripe plants of other varieties to make way for vanilla. In fact some banks sent their representatives to remote villages persuading farmers to take loans and plant vanilla.
What goes up, comes quickly down
But the dream quickly turned sour, and by the last season the shockwaves were in full force, with market prices for raw beans as low as Rs.50 a kg in the last season. The bank loans' remain on the lenders' financial books as massive non-performing assets in some areas of Kerala. And the farmers themselves are caught deep in the debt trap, with no escape route in sight.
"It was foolish to nurture such unrealistic hopes about a single crop, [the price] were bound to crash," points out Abhay Jacob, a senior farm journalist in Kerala, who had warned against the en-masse shifting of cropping patterns, noting that prices for farm products often showed such huge fluctuations in international markets. He said that thousands of hectares of ripe crops were pulled out of the ground to make way for vanilla in the 2002-03 season, as farmers hoped that the prices would go higher and higher. There were also rumours that synthetic vanilla, a substitute for the organic variety, was likely to be banned on health grounds; if that happened, farmers reasoned, the demand for vanilla beans from the international food industry would only go up even further.
But in fact the opposite happened. As the price of natural vanilla rose absurdly high, the multinational food, beverages and ice-cream companies, who are its main consumers - vanilla is an essential ingredient for ice-creams, cakes, biscuits and beverages - turned to synthetic and semi-organic varieties for flavours. Predictably, the price for natural vanilla began to fall dramatically in response.
"It was a case of wrong understanding of the global market trends," says P S Sreekantan Thampy, senior officer at the Spices Board, Kochi, which is the national agency for the promotion of spices trade in India. He said that right from the beginning the Spices Board had warned farmers against shifting en-masse to vanilla as it was a risky move.
The irony is that vanilla is generally considered a safe crop to invest in. Traditionally, the farmers were planting vanilla as an intercrop with rubber, coconut, and vegetables. After the first three years, each healthy plant can be counted on to yield as much as two to three kg of ripe beans every season. With a low investment of around Rs.30 a plant, a comfortable return of around Rs.130-150 from each was assured. These leafy plants don't need much pesticides and fertilizers; all that's necessary is good shade, plenty of water and natural manures, all fairly easy to come by in the hills of the southwestern part of the country. The only major effort needed from the farmer is during pollination, as each plant has to be individually pollinated early in the day.
As the farmers burnt their fingers with huge unsold stocks last season, there was a hue and cry about the farmers being let down by the authorities. The Central Government even urged the Spices Trading Corporation of India, a public sector undertaking, to absorb the stocks.
"But we can't absorb all those unsold stocks as we cannot incur losses beyond a point," said an official at the Corporation who said that they could step into the market only when prices drop dangerously below the normal level, threatening the entire agricultural sector. "But the case with vanilla was different," points out Abhay Jacob. It was a deliberately engineered hysteria that misled the growers to disaster. It was also a case of drying the haysack while the sun shone: during those days there were firms who sold planting material - saplings of one metre - for as high as Rs. 135 while it had cost only Rs.2 to 8 in previous years.
It was sheer madness in the heydays of vanilla craze. There were plantation owners who kept a round-the-clock watch as thieves roamed about the villages to carry off plants, as even the saplings could fetch a fortune. "There were some people who even put up electric barbs around their farms simply to protect this green diamond in their backyard," recalls Jacob, who hails from a rich farming village near Kottayam.
The Vanilco experience
But vanilla remains a good and profitable crop for growers and investors. With a long-term stratgey and proper investments, it could still be a money-spinner. Vanilco, a producer-promoted company, has proved this convincingly in the past year. The Vanilla India Producers Company Ltd, (Vanilco) was registered at Kochi in October last year with individual farmers and their primary societies as members. Vanilco is the first experiment in farm-level marketing and processing, under a new legislation introduced by the Union Government in 2002. Vanilco is involved in the procurement and processing of vanilla beans, and is exploring new ways to develop value-added products for Indian markets.
"In the last season, when we had just entered the market, we procured around 50 tonnes of vanilla beans at Rs.250 a kg," says M C Saju, an official with Vanilco. Vanilco has begun processing the beans at its factories in Kerala and Tamilnadu, and is collaborating with the Indian Institute of Technology, Mumbai, to develop new methods for the extraction of flavours. It has also found bulk buyers for the flavours; Amul and Milma are using their natural vanilla for their ice-creams and other products.
Saju notes the domestic market itself is growing. The rising demand is reflected in the procurement charts at Vanilco. Compared to last year's 50 tonnes, Vanilco has already procured 130 tonnes in the first two months of the season. This year they target to procure 200 tonnes. What was needed all along were new technologies to develop value-added products in India, as Madagascar offers over a dozen different items for various segments of buyers, both commercial and household. For this, fresh investment has to be directed to this spice. If that were to happen, not only would home-grown beans sell out comfortably, but India would have to import vanilla beans as its produce will not be sufficient to meet the huge market demands, he says.
Clearly, the intervention by Vanilco has proved that vanilla growers need not be at the mercy of international agents who used to control the markets. With a strategy of deferred payments, Vanilco has been able to offer a price of Rs.250 while the open market rates (cash down) offered by the global buyers are around Rs.150 per kg. With new research ongoing to develop additional products in India, vanilla may yet be the bean to bet on. But this time, prudently.
