In the face of plummeting vanilla prices, forming financial cooperatives has kept several thousand vanilla farmers in northeastern Madagascar afloat.
The price of vanilla, the Indian Ocean island's chief export, has fallen steadily from a record high of US$450 to $500 per kg in 2003 to just $50 per kg by early 2005, reaching about $30 per kg in 2007.
Most vanilla production is concentrated in the fertile area of Sava, in the northeast, where about 70 percent of the population depends on the spice, according to the UN agency, International Fund for Agricultural Development (IFAD), which kick-started the cooperatives in 1998/99 when the price was around its current level.
"Vanilla prices have a 10-year cycle; we wanted to provide a safety net for the small-scale farmers when the price was expected to fall," said Benoît Thierry, IFAD's country programme manager. "This is probably the most successful aspect of the project - linking production and sales to a system of savings and credit."
The North-East Agricultural Improvement and Development Project launched three kinds of cooperatives: to provide a financial safety nets, help farmers group themselves to add value and help market their vanilla; and increase self-sufficiency in rice to ensure they were food secure during the lean season.
Before the cooperatives were launched, small-scale farmers would often squander their savings on disposable goods. "It was fortunate that the scheme was up and running when the prices hit the record high in 2003 and farmers could save their earnings," said Thierry.
Vanilla, the only fruit-producing orchid, is one of the most labour-intensive crops in the world, taking as long as five years from planting the vine to producing aged extract. Production involves the entire family, who pollinate the vanilla by hand when it flowers after two years, and then collect, cure and dry the pods.
The financial cooperative allows farmers to access credit during the lean season that lasts for most of the year, as vanilla is sold only between June and October, besides providing funds to purchase inputs, said Thierry. The scheme started with about 1,000 members but since has notched up 18 branches with 17,000 members, $10 million in savings and $2 million in outstanding loans.
Farmers were also able to access financial services through a network of credit unions. Besides the financial safety net provided by credit unions, the project also attempted to ensure that farmers and their families were food secure during the lean season. "The problem was that the Sava region was getting too dependant on the export crop and food production was declining," said Thierry.
The project helped set up 150 rice cooperatives, each with access to between 10ha and 30ha of land, managed by their members. "This helps to feed the region, especially when the vanilla price is down, as is currently the case."
Vanilla growers' cooperatives, with a membership of 10,000, have helped farmers add value and market their product more profitably. "Most small-scale farmers sold their vanilla green, just after it was picked," explained Thierry. "Green vanilla pods don't stay fresh for long and had to be sold immediately at a low price, as buyers would come around and collect it straight after harvest."
The cooperatives have helped growers learn to process the vanilla, which has increased their income 10-fold and given them the "freedom to choose when to sell".
Vanilla pods are cured to produce vanillin, which gives vanilla its distinctive flavour. Curing involves boiling the pods and then slowly drying them for three to four months until they become pliable and deep brown. Most small-scale farmers in Madagascar, where the crop was introduced during the nineteenth century, sell the dried pods to local buyers rather than extract the essence themselves.
Record high prices in 2003 encouraged other countries, such as Papua New Guinea, Uganda, India, Costa Rica and Colombia, to take up growing vanilla, which has affected the farmers in Madagascar.
"The future now lies in creating niche markets around organic vanilla, and the introduction of an international fair-trade certificate, which has the aim of guaranteeing a better income for small-scale producers of various commodities," said Thierry.