Norman’s Supply and Demand Journal Entry/Assignment

Market: Natural Vanilla (pods)

Article: http://www.tampabay.com/news/business/retail/vanilla-bean-prices-rising-sharply-8212-again-8212-for-local-businesses/2311031

Other Sources: http://vanillaqueen.com/expensive-vanilla/https://www.ft.com/content/f16d8766-ee13-11e6-930f-061b01e23655

Natural vanilla prices have more than tripled in the past two years to a current average of about $450 per kilogramme. A Michigan based vanilla supplier was buying vanilla beans in at the same time last year at the price of about $60 per pound or 134$ per kilogramme, which is almost 4x more than it’s current amount. The shortage is blamed on a poor crop in Madagascar that began in mid-2014. The country produces about 85 percent of the world’s vanilla supply, which typically totals between 2,500 and 3,000 metric tons of beans annually. In 2015, the world’s vanilla growers produced only about 1,000 metric tons. Because vanilla is by far the smallest of the tropical luxury crops, the vanilla industry always faces dramatic fluctuations. But this current dramatic increase of the price, has put vanilla beans second to saffron for the most expensive spices in the world. 

Back in 2006 when a similar trend had occurred, many companies dealing with ice cream, candy, chocolate, cookies, and baking products had moved on to many other substitute artificial vanilla extracts and flavourings which led to a decrease in the actual demand of the natural vanilla product. But later, towards 2012 demand for the natural vanilla rose again when new trends surrounding organic, natural, non-GMO, and fair trade topics began to arise. Now, with the shorter supply which is creating the higher price, the production and inquiries of possible substitutes for this good have heavily increased, yet still demand remains the same as the original, natural flavour is very important to many high quality recipes for consumers (bakeries, restaurants) with that disposable income.

Here is a quote from the article: “People who want that flavor or the appearance are still paying for it,” Reame <(a local shop owner)> said, “There’s a lot of traditional recipes where they’ve always used a vanilla bean or they’ve always used pure <(natural)> vanilla and the economy is good enough where there’s enough disposable income to get the real thing.”

Therefore, through the supply and demand graph, there is a decrease in supply due to the shortage of crops in Madagascar, yet the demand has stayed the same for consumers who are still dedicated to the high quality product that is essential to many consumer’s recipes and personal preferences. The insane price increase, and decrease in supply is not shown in this graph, but the idea is shown below.

Supply and Demand

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