Why Ice-Cream Is So Expensive: Part One


The world is collectively in love with ice-cream. In July last year, a report by market intelligence agency Mintel put global ice-cream consumption in 2016 at 13 billion litres, with strong evidence that that figure was going to rise both in 2017 and this year. Australians ate around 9.4 litres of the dessert per capita; this was second only to Norwegians who ate around 9.8 litres each. The biggest markets were China (4.3 billion litres), the US (2.7 billion litres) and Japan (757 million litres). Other non-Western countries are massively increasing their consumption – India and Indonesia both increased their consumption by over 10% over previous years. Simple economic theory dictates that as demand goes up, so too does price. Despite the booming demand, IBISWorld reports that the ice-cream industry has had ‘limited’ revenue growth over the past couple of years.

It is the other half of simple economic theory that is both making the largest impact on ice-cream production and is behind this article – increasing cost of production. Most particularly: vanilla beans. Ice-cream prices may have gone up, but vanilla prices have absolutely skyrocketed. It is now the world’s second most expensive spice, trailing only behind saffron. Apart from a bump in the early 2000s (which returned to normal by 2008), vanilla has sat at well under $100/kilo since the 1990s. Iain Fraser, Professor of Agri-Environmental Economics at the University of Kent, puts it at $25/kilo in 2008. However, around 2013, the price began climbing at a phenomenal rate, stabilising last year at around $550/kilo before rising again this year. It now is hovering at over $600/kilo. For context: silver costs around $530/kilo. (All figures in USD.)

This spike has affected ice-cream across the world. A BBC report published on the 7 May this year which focusses on an ice creamery in the UK finds that vanilla is used in around 1/3 of ice cream flavours that they sell. Some vendors have taken vanilla flavour completely off the menu. Considering that vanilla is one of the most ubiquitous (and popular) flavours of ice-cream, its relative disappearance represents a massive change to the industry.

The root of the problem can be traced to Madagascar. The French introduced the most common type of vanilla (‘bourbon vanilla’) to Madagascar in the 19th century. While originally native to South America and the Caribbean, Madagascar now produces over 80% of the total global supply. This is mainly produced in the north-eastern regions of the country. Synthetic products (generally made from petroleum or wood pulp) kept the price tag down in the 20th century; however, developing consumer tastes for ‘natural’ products has pushed up demand and made vanilla a valuable crop.

The extreme price-tag, however, is also due to factors in Madagascar itself. Firstly, there is the environmental factor. According to National Geographic, vanilla is incredibly hard to grow. Each flower has a pollination period of just 24 hours per year – after which, if not pollinated, the flower wilts and dies. Due to the finicky pollination process, all blossoms outside of the natural habitat in Mexico are hand-pollinated. It seems fair that in her piece for National Geographic, Rebecca Rupp writes that “given its sexual proclivities and narrow window of opportunity, the very existence of vanilla seems like an evolutionary long shot.” Once pollinated, each flower produces the ‘fruit’, which is the vanilla pod. After about 9 months this ‘fruit’ is ripe, and is picked and subjected to a long, complicated curing process which results in the ‘vanilla bean’ commonly sold around the world. In terms of scale: six hundred pollinated blossoms creates around six kilos of beans, which after processing yields around one kilo of product.

But that fails to cover the situation. Vanilla is also a very slow-growing plant; it takes three to four years for a vine to mature (or at the very least two, if grown from a particularly large and high-quality cutting). In a stable environment, this would only constitute a minor problem. However, Madagascar does not have a stable environment. Instead, it has a proclivity for cyclones. The most recent major event for the vanilla industry occurred in March 2017, when Cyclone Enawo hit the Madagascan north-east coast. It was a human tragedy which (according to Reuters) killed at least 78 people. However, the north-east is also the major vanilla-producing region; the cyclone destroyed around a third of the country’s crop.

To return to the ‘simple economic theories’ at the beginning of this article: vanilla has had its price driven up by both increased demand and decreased supply. As noted above: it’s worth more than silver. And in a country like Madagascar – with a history of political instability, colonialism and poverty – that’s why it is important. By many purely economic indicators, the price of vanilla has arguably been a net good for the Madagascan state economy. The World Bank country overview specifically credits “soaring vanilla prices” with helping the economy: “Vanilla export earnings helped curb the external current account deficit, maintain the value of the local currency, and build up adequate foreign currency reserves.” The Economist reports that vanilla represents around 20% of Madagascan exports, with the trade being worth around $600 million per year.

Despite this value, vanilla farmers earn next to nothing, and face circumstances rife with dangers. According to an International Fairfood report in 2015, ¾ farmers in the SAVA region (the majority of whom are vanilla farmers) live on less than $1/day. The Fairfood report further cites an Actis field research report stating that 88% of farmers reported insufficient income to cover household expenses for at least 3 months per year, and that 90% of vanilla farmers were food insecure for at least 3 months per year.

The next players in the supply chain reinforce this poverty. These are the ‘middlemen,’ who buy the vanilla from farmers and take it to processing facilities. These are the first people who make a profit; they buy the vanilla from the farmers at rock-bottom prices, and sell it along at a profit. An Al Jazeera report quotes a spokesman for a group of these middlemen as saying the middlemen make a 20% margin at a minimum (and according to DanWatch, they regularly make more). However, the collectors also exploit the extreme poverty of the farmers; Rajao Jean, president of a farmers’ association, says that during the wet months when farmers have run out of savings and become desperate for food, these middlemen return to offer “vanilla flower contracts.” These are loans to help see the farmers through to harvest time. The terms of the loan are predictably exploitative: the middlemen fix prices and apply massive interest rates, to then return after harvest to collect on the debt. Loans are also set during periods when vanilla demand is low, and the price is correspondingly low; as prices go up around harvest, the middlemen make even more money. They thus buy the pods far below market value, increasing their own share of the profits and condemning the farmers to another year of poverty, until the loan period comes around again. DanWatch reports that other community members with money – doctors, shop owners, etc – make these loans as well.

These loans are also usually based on a particular quantity of vanilla to be harvested and sold. This puts farmers in problematic positions due to the prevalence of natural phenomena disrupting the crops, or theft. Despite any such occurrences, the contract must be honoured, further forcing the farmers into poverty. In many cases, farmers are forced to sell livestock, possessions and even their home. But in the blackest cases, DanWatch reports, loans must be repaid with “the price of flesh.” Farmers are forced to sell their daughters to repay the debt; the girls can be as young as 12. If the girls become pregnant, abortions are performed under exceedingly dangerous circumstances, which too often result in death or the inability to have children in the future.

The extreme poverty means that child labour is rife; according to the United Nations International Labour Organisation (ILO), nearly a third of the workforce in the vanilla industry consists of children aged between 12 and 17. Under Madagascan law, children must go to school until they are 14, and it is illegal for a child under age 15 to work. However, according to a Guardian report, these laws make little impact in the vanilla industry. The extreme poverty means that many people don’t consider children working alongside their parents as a problem; the former mayor of Andapa, Tombo Tam Hun Man, is cited as saying that children working in the fields is a natural way for them to learn about the industry. Due again to the extreme poverty, these children regularly are unable to access educational facilities (either due to their non-existence or the dire financial straits of their parents requiring children to help with work). These conditions are regularly in violation of both the ILO conventions on child labour and the UN Convention on the Rights of the Child, as well as various aspects of Madagascan law.

No wonder ice-cream makers are struggling: vanilla, as shown, is expensive. Not just in dollar terms (although the high monetary value is important); vanilla has a human cost as well. The massive human rights issues outlined above are more than enough to problematize the Madagascan vanilla industry, and are emblematic of the issues caused by rampant poverty and third-world exploitation. The commonality of child labour, exploitative ‘loans’ reinforcing cycles of poverty and even selling girls as young as 12 for sex to repay loans are abhorrent in today’s world. Further, this occurs through an industry in which product values have increased by over 1000% in ten years, and where demand for this product in wealthy states has increased dramatically. However, this still is not the whole story; Part Two of this report will outline how the vanilla trade has ramifications in the Madagascan political system and how key players have used it to influence recent outcomes in the country’s tumultuous (and often violent) politics.