Revival of Indonesian Vanilla Production amid Production Decrease in Madagascar

Vanilla

Indonesia

Madagascar

Published Jan 7, 2020

Indonesian vanilla suffered from a few reputation problems due to quality issues in the early 2000s. Now, the quality is high as ever and the market is recovering. This comes at a great timing, as Madagascar, the world's largest vanilla supplier, is experiencing production difficulties.

Vanilla is one of the most coveted agricultural products in the world. After saffron, it is the second most expensive spice, with prices reaching as high as USD 600 per kg. Madagascar is by far the largest supplier of vanilla, accounting for over 60% of global exports. However, production on Madagascar has been declining recently due to harsh weather conditions. This presents opportunities to other vanilla-producing countries, such as Indonesia. Indonesia was once the second-largest exporter of the spice, but exports declined after problems with quality consistency. Recently, however, Indonesia is repositioning itself as a leading exporter.

Rapidly Improved Quality of Indonesian Vanilla

Indonesia produces approximately 2.4K tons of vanilla yearly. Most vanilla is produced in the East Nusa Tenggara province. Thriving plantations can be found on the islands of Alor and Flores and these plantations contributed to as much as 30-40% of the total production in 2019. Vanilla production is extremely labor-intensive and it takes very long for the plants to first bear fruit. It takes 16-18 months from bloom to sale, and 600 flowers, which have to be pollinated by hand, yield only about 1kg of dried beans.

Due to its labor-intensive production process, vanilla commands a very high price. In Indonesia, fresh vanilla beans can be sold for approximately IDR 400K (USD 28.7), whereas dried vanilla beans are priced at IDR 5 million (USD 358.4). The spice has not benefited from its high value: nicknamed “green gold”, it has frequently been the subject of theft, violence, and adulteration. In the early 2000s, Indonesian farmers started mixing vanilla with mercury and nails to increase the weight. They also harvested the vanilla earlier, after 4 months instead of after 9, which significantly affected the quality of the bean.

As a result of the decreased quality, exports dropped significantly. In 2005, the exported value decreased by almost 70% and it took almost 10 years for the value to pick up again. Since 2016/2017, the Indonesian government has put lots of effort into improving the quality of vanilla, providing training sessions and quality standards. All vanilla destined for export has to have a HACCP certification to prove purity and cleanliness.

Difficult International Market Provides Opportunities for Indonesia

The improved quality has already led to a surge in international demand and is allowing Indonesia to position itself like a leading exporter again. This focus on quality is now more important than ever, as the global spice market is in need of alternative vanilla sources after bad weather conditions damaged production in Madagascar.

Typhoons in 2017 and 2018 severely damaged Madagascar’s vanilla production, leading to a 30% decrease in outputs. Madagascar is a major price setter on the vanilla market, so global vanilla prices rose to an all-time high as a result. Although prices have since decreased, many large spice companies have started looking into different sourcing options to decrease reliability on one country only. Ben & Jerry’s, for example, looked to Uganda as a potential source for its vanilla, but their project backfired. McCormick is now starting trials in Papua, Indonesia.

As vanilla from Madagascar is often perceived to be of higher quality than Indonesian vanilla, the company provides training to Indonesian farmers to improve quality, similar to what the Indonesian government has done as well. Demand for Indonesian vanilla is a lot larger than its current supply, so projects to improve quality and increase quantity are highly welcomed by exporters and the government.