Vanilla beans, used to flavor everything from ice cream to chocolate, have seen a drastic decrease in supply. That decrease in supply is due to a long period of prolonged price slumps, which forced many producers to cut back. However, recently there has been a boom in the demand for natural vanilla. This increase in demand was brought on by the recent push for natural ingredients in the products made by large companies. Since supply was limited due to the prolonged period of low prices, vanilla producer in countries like Madagascar have had a hard time meeting demand.
To meet this demand, producers began to cut corners and harvest the vanilla pods sooner. Since the pods were picked before reaching maturity, they lacked a fully developed vanillan compound. The vanillan compound is responsible for the aroma and taste of vanilla. So, the vanilla taste suffered, and consumers were given an inferior product.
However, this is not the only reason that the booming demand caused vanilla flavored products to taste worse. The increase in prices have forced many bakers and dairies to switch to synthetic or lower quality vanilla flavoring. There is a limit to the price that consumers are willing to pay, and it looks as if the vanilla market has almost reached that limit.
I would expect the demand to decrease once again due to the high prices, and then reach a market equilibrium. Hopefully this new equilibrium will allow for our vanilla ice cream to return to its optimal taste.
Link: http://www.bloomberg.com/news/articles/2016-03-28/sky-high-cost-of-top-ice-cream-flavoring-is-hardly-plain-vanilla
This is an interesting article and I think one that pertains to a lot of different industries that are experiencing more demand as consumers shift to more healthy and natural options. I agree with your assessment that since the price has increased the demand for the product will eventually decrease as a result coming back down to a market equilibrium. It will be interesting to see whether consumers find cheaper substitutes in the meantime and switch to chocolate ice cream for example until these prices come back down and it is more appealing to buy vanilla ice cream again.
ReplyDeleteThis is a problem which i feel will keep increasing with commodities other than vanilla also. It is interesting to see how a cut in supply can trigger different situations that causes the product itself to suffer. Although the high prices have a downward pressure to reach an equilibrium price but if the demand for vanilla beans keeps increasing we may see a spiral of higher prices and lower quality of the product.
ReplyDeleteI also expect that demand will adjust (slightly), but I think supply may adjust even more so. It seems like this movement for natural ingredients will stay, and as such there will be consistently higher demand than what was seen before this. Potential producers I think will identify this and enter the market until the price lowers and stabilizes once again.
ReplyDeleteAdil makes a good point if the prices of vanilla beans goes up then we face a problem as consumers that if we don't want to play the higher price then do we settle for a lower quality product? Issues like this can cause consumer confidence in the vanilla bean market to go down and that would have a adverse effect on companies selling these beans.
ReplyDeleteIt is interesting to think of how companies have to make changes due to significant demand for their products. I would assume that vanilla is a relatively inelastic good, as almost everything that I bake requires a little vanilla. This being said, the producers of vanilla can most likely decrease the quality of their product without suffering from lessening demand.
ReplyDeleteDo you blame them? In my eyes, why would someone keep up to supply for a low demand product? Also, for bakers and dairies, if prices reach a certain point, it won't be worth it to keep the same ingredients because their costs will exceed their prices, or their margins will be too small. I think that this whole process just needs time. Once the supply is fully grown and ready, the quality of the product will reach its original taste.
ReplyDeleteThis is a classic case of supply and demand altering the price of a good. I feel like since the substitutes are not perfect to get the job done, the price of vanilla definitely needs to increase. Hopefully, the supply of natural vanilla can increase so the prices will come back to their natural rate.
ReplyDeleteThis creates an even more interesting problem when you consider the decrease in supply for chocolate; since chocolate and vanilla often substitute each other, with both flavors facing a shortage of supply, prices will rise even higher.
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