Date
21 August 2018
Ice-cream makers are set to raise their prices as demand continues to rise amid a shortage in the supply of vanilla. Photo: Bloomberg
Ice-cream makers are set to raise their prices as demand continues to rise amid a shortage in the supply of vanilla. Photo: Bloomberg

Ice cream makers struggle with record vanilla prices

The price of vanilla has hit a record high of US$600 per kilogram, making it even more than expensive than silver. As a result, many ice-cream makers are considering either to raise prices or stop selling the vanilla flavor.

Vanilla prices have been surging since March 2017 when a cyclone hit Madagascar, which accounts for 75 percent of global production.

The flavoring extract comes from the vanilla orchid, which produces vanilla beans. The tropical island off the southeastern coast of Africa has the perfect climate and soil for the spice.

But poor harvests have reduced the country’s vanilla production by more than 20 percent, leading to a worldwide supply shortage.

Of course, ice-cream makers can resort to the more affordable artificial vanilla. But rising health concerns have led leading food brands such as Unilever and Nestlé to pledge to only use natural spices. That has driven up global demand for vanilla.

There is another factor behind the soaring price of vanilla: rampant speculation.

It is said that some gangs in Madagascar have been making a big fortune by smuggling padauk, one of the world’s most expensive wood used in making furniture, to China.

They use the money to buy vanilla both as a means to launder money and for speculation.

A combination of these factors has pushed the price of vanilla to US$600 per kilogram from just US$100 in 2015.

Britain’s Snugburys Ice Cream said it is weighing several options to cope with the situation, including passing the higher cost to consumers or promoting other flavors. Ice-cream chain Ruby Violet simply stopped selling the vanilla flavor.

On the other hand, leading ice-cream makers such as Nestlé, Häagen-Dazs and Mövenpick have more than a year’s stock of vanilla and have yet to raise prices.

But ice-cream consumption is expected to more than triple this summer, compared with the level in the winter. As such, ice-cream makers may seriously consider raising their prices.

This article appeared in the Hong Kong Economic Journal on May 9

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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