Futures & Commodities

Vanilla price surge hits high-end ice cream consumers

Emiko Terazono
oliverrees | Getty Images

Is your artisanal vanilla ice cream under threat?

A surge in the price of vanilla pods after a cyclone this year hit Madagascar, the world's top producer, has left ice cream makers scrambling to secure supplies of the flavouring extract.

Used in chocolate, cakes and drinks, as well as ice cream, vanilla is one of the world's most popular flavours.

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This year's price rise, which has seen it reach a record high of more than $600 a kilogramme, has forced one high-end London gelato chain Oddono's to pull its vanilla ice cream off the menu, and some bigger companies to raise prices.

"It's been ridiculous," says Charlie Thuillier, founder and managing director at UK based Oppo, which makes healthier ice cream from virgin coconut oil and stevia leaf.

Following the cyclone, the company's original vanilla supplier raised the price of the extract more than tenfold, doubling production costs for Oppo's Madagascan vanilla and baobab ice cream.

Cyclone Enawo, which displaced almost 500,000 people when it hit the island off Africa's east coast in March, underlines the risks of buyers being overly dependent on a leading country for a commodity.

Prices for the spice, which is not traded on an exchange, have been rising in recent years as large food companies pledged to stop using synthetic flavourings.

The cyclone landed at a time when speculative hoarding by local middlemen in Madagascar was already squeezing the market. Although traders say that prices have come down to pre-crisis levels of about $500 a kilogramme, supplies remain limited.

Oppo changed and diversified suppliers and experimented with its product to avoid lifting prices. "Because we have other flavours, we can also spread the cost increase," adds Mr Thuillier.

Fans of Oddono's ice cream have not been so lucky. Citing an "unprecedented shortage" of vanilla pods, the London gelato chain has stopped selling its vanilla ice cream. It told customers that it hoped to resume offering the flavour when the 2017 vanilla crop became available.

Large food companies have also felt the impact. Nestlé, which says it manages volatility in its ingredient costs through "adapted procurement strategies, cost savings, innovation and, as a last option, price increases", raised prices of its Mövenpick ice creams in Switzerland by 2.5 per cent this year.

Across the Atlantic, Vince Petryk, founder of JP Licks ice cream stores in Boston, is happy that he managed to get in ahead of the price surge.

"Our supplier gave us a heads-up and we were able to buy vanilla at last year's prices," says Mr Petryk, who managed to procure more than 200 gallons of Madagascar vanilla extract in the spring and is comfortably supplied until next year.

In California, however, Karen Klemens, owner of Mother Moo Creamery and Marketplace is about to run out of her organic vanilla stockpile.

Since the cyclone, manufacturers no longer offer the product she has used, and Ms Klemens will need to switch to a blend of natural flavouring from a food source and a pure vanilla extract. "Vanilla flavouring is still one of the biggest costs for vanilla ice cream," she says.

But not all vanilla flavour users are in a bind. Only 1 per cent of the vanilla flavouring used in food and cosmetics comes from real vanilla. Vanillin, the flavour molecule found in vanilla beans, is also synthesised from petroleum, coal tar and wood, as well as foods such as rice bran and clove oil.

The bulk of the world's vanilla flavouring is made from non-food sources, although more companies are turning to that from food sources. Even that market has felt the reverberations of the Madagascan crisis, though, as demand has risen in the face of high vanilla bean prices.

Madagascar is comfortably the largest producer of vanilla and accounts for about half of the world's output. A handful of countries, including Indonesia, Mexico, Papua New Guinea and the Comoros islands, are also suppliers, but have not been able to make up for the decline.

Traders of vanilla pods are keeping their inventories low, procuring it only when needed.

"This has happened before," says David van der Walde, director of Aust & Hachmann in Canada, who notes that prices jumped in 2003 only to plunge, leaving companies and traders holding stock and nursing heavy losses.

"We're not going to keep a lot of inventory. When I buy from Madagascar, I make sure there's a buyer on the other end," says Mr van der Walde.

Vanilla pod producers are responding to higher prices by planting more but, given the time it takes for a plant to grow, output will not increase immediately.

Tim McCollum, founder of Madécasse Chocolate & Vanilla, which offers chocolate and vanilla from Madagascar, says: "We're still looking at three to four years until the market returns to the sustainable levels of $100-150 per kg."

However, he says that for the first time in their lives, Madagascar's vanilla farmers are making enough money to build homes with cement, instead of the local palm plant, and can afford to educate their children beyond second grade.

"Vanilla farmers in Madagascar see it as the best market in recent memory," he adds.

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