Madagascar's Powerful Families Face The Vanilla Revolution

By Greg Mills
February 11, 2009
Over the past fortnight, violence in Madagascar has flared, leaving over 100 dead, with supporters loyal to opposition figure Andry Rajoelina and looters clashing with the police and military under President Marc Ravalomanana.
On the face of it, Rajoelina, the mayor of the capital, Antananarivo, known to all as "TGV", is angry because the president closed down his Viva television and radio stations late last year for having aired a speech by former (now exiled) president Didier Ratsiraka.
Ratsiraka, a former Marxist, ruled for 23 years until being deposed in a controversial 2002 election by Ravalomanana, then also the capital's mayor, who used street demonstrations to seize power. So, it's déjà vu all over again.
Deeper down, TGV is using widespread grievances to make a political point - and no doubt a future for himself in a campaign he has modelled on Ukraine's 2004 pro-democracy Orange Revolution.
Most of the country's 20 million people are mired in poverty while the economy is controlled by a clutch of families, with Ravalomanana's "Tiko" business empire at the apex. His dairy and oil business is the largest locally owned company on the island. News of his plans to buy a $50 million private jet has reinforced perceptions of disproportionate benefits for some in the current "free-market" environment.
After his second poll victory in 2006, the president promised a bold anti-poverty recovery programme - the Madagascar Action Plan - making the right donor noises about poverty alleviation and private sector-led growth. But not only has the plight of the poor, who account for about 80% of the population, failed to improve significantly, but rising prices have hit them hardest.
Vanilla is a case in point, and an illustration of how the Malagasy economy is run.
Madagascar currently controls more than half of the world's natural vanilla production and the crop was its No 1 export. About 150 000 farmers and their families depend on vanilla for their livelihood. (The actual vanilla, an orchid that climbs as a vine up trees, is harvested by isolated sharecroppers.) However, the vanilla market plunged into crisis around 2005, as major consumers switched to vanilla substitutes, notably vanillin.
Vanilla increased in price remarkably in the first part of the decade, going from $130/kg in 2000 to $500/kg in 2004. Between 1999 and 2003, the annual growth in the global vanilla price was 64%.
Cyclical price swings plus a concentrated effort by producers to withhold supplies seem to have been behind the upward surge. Consumers in the soft drinks, bakery, and ice-cream markets responded to the price increases by shifting to other sources of vanilla flavouring, notably sweet potatoes, wood shavings and rice husks.
As a result, the price of vanilla dropped to $40/kg in 2005. However, the low price did not produce an upsurge in demand, because consumers had now shifted their taste profiles to the alternative vanilla sources. For instance, Italy - home of one of the world's great baking and ice-cream industries - uses 450 tons of alternative vanilla each year and only 10 tons of traditional vanilla.
The artificial vanillin industry produces up to 15 000 tons a year, now dominating 90% of the US market (where the major importer is Coca-Cola) and half of the French market. Moreover, one teaspoon of the synthetic flavouring has about the same strength as 4.5 litres of the natural product.
In short, the producers got greedy and blew it.
Oversupply has hurt Madagascar (which has a 50% global market share) particularly hard. But not only have international producers - including Indonesia, India, Mexico, Uganda, and Tonga - failed to come up with a joint solution, but the local, dominant trading houses (comprising 30 trading groups but dominated by just three) were also slow to respond.
Deeper still, TGV has also latched his campaign on to the president's plans to lease 1.3 million hectares - about half the country's arable land - to South Korean conglomerate Daewoo Logistics to grow maize and biofuel. This deal was abandoned at the end of last year in the face of mounting domestic protests. In an environment where people have very little, they remain fiercely nationalistic about control and the role of foreigners - a sentiment that the Malagasy, like Africans elsewhere, are ultimately going to have to swallow if they want to progress.
Remarkably, Ravalomanana's free-market rhetoric persuaded the US government to make Madagascar one of the first beneficiaries of aid from its US Millennium Challenge Account in a deal of nearly $110 million spreading over four years from 2005.
This must have been more about Washington desperately seeking partners and needing to spend the money than really expecting a return. At the time, Madagascar's overall business climate was weak, business was in the hands of a small number of politically connected families, the government had not focused on financial models that would allow for viable investment in infrastructure, the privatisation process was halting, and there were significant political uncertainties.
Not much has changed. No wonder, then, the violent situation today.
Dr Mills heads the Johannesburg-based Brenthurst Foundation.
 

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