Content uploaded by Marina Visintini
Author content
All content in this area was uploaded by Marina Visintini on Dec 05, 2024
Content may be subject to copyright.
What action, if any, should the Government of Madagascar
take to improve the livelihoods of green vanilla farmers?
Author: Marina Visintini
This policy memo addresses the persistent poverty among Madagascar's vanilla farmers. The problem
is brought about by a complex value chain where intermediaries capture most of the income, leaving
farmers with only a small fraction. To tackle these challenges, the memo evaluates three policy options:
maintaining the status quo, facilitating market access through a digital platform, and imposing a
targeted tax on intermediaries. The recommended solution is to implement a digital marketplace that
would provide farmers with direct access to market information, reduce reliance on intermediaries, and
increase their share of market returns. Even though there are tradeoffs, this policy offers a viable
alternative to the ineffective status quo, with the potential to significantly improve the livelihoods of
Madagascar's vanilla farmers by enhancing transparency, reducing poverty, and promoting equity in
the value chain.
2
Table of Contents
PROBLEM SYMPTOMS .......................................................................................................................... 3
PROBLEM FRAMING .............................................................................................................................. 4
POLICY BACKGROUND ......................................................................................................................... 5
POLICY GOALS ....................................................................................................................................... 6
POLICY OPTIONS ................................................................................................................................... 7
Policy Status Quo ............................................................................................................................................. 7
Facilitating Market Access for Farmers ............................................................................................................ 7
Targeted tax to intermediaries .......................................................................................................................... 7
ANALYSIS OF THE OPTIONS ................................................................................................................ 8
Status Quo ....................................................................................................................................................... 8
Direct Market Access for Farmers .................................................................................................................... 8
Targeted tax to intermediaries .......................................................................................................................... 9
RECOMMENDATIONS .......................................................................................................................... 11
REFERENCES ....................................................................................................................................... 12
3
Problem Symptoms
Vanilla is Madagascar's second most significant export, accounting for 15% of the country's total (OEC,
n.d.). As the world's largest producer and exporter of vanilla (Tridge, n.d.), the industry is a vital source
of income for an estimated 80,000 to 100,000 smallholder farmers (Campbell, 2018). Despite this,
widespread poverty persists among vanilla farmers, with three-quarters living below the poverty line
and facing severe food insecurity (Herrera, 2021). In 2024, the average income for a farming household
is estimated at just 3.2 EUR per kilogram of green vanilla sold (Hänke, 2024). According to Fairtrade
International, a farming household would need to earn approximately 10.2 EUR per kilogram to earn a
living income, which is defined as "sufficient income generated by a household to afford a decent
standard of living for all household members. Elements of a decent standard of living include food,
water, housing, education, healthcare, transportation, clothing, and other essentials, including a saving
provision of 5% for unexpected events" (Hänke, 2024). This income disparity is largely attributed to
exploitation within the value chain.
The structure of the vanilla value chain is long and complex (see Figure A), involving multiple
intermediaries who capture the majority of the income from vanilla exports (Fairfood, 2016). Rabatteurs
(Procurers) and Commissionaires travel to remote farms to purchase vanilla; these intermediaries then
sell the vanilla to collectors, who in turn sell it to export companies, which finally sell it to international
buyers. Opportunistic behavior of intermediaries has been a persistent issue in the industry (Cadot et
al., 2009). The current unofficial minimum export price set by the Malagasy authorities is $60 per
kilogram (De Monchy Natural Products, 2024), meaning farmers capture, at best, only about 5% of the
export price (Hänke, 2024).
4
Problem Framing
The situation reflects a market failure due to imperfect competition, where a few powerful
intermediaries dominate and can dictate prices. This leads to significant inequality of outcomes, as
farmers, despite their substantial contribution to the national economy, receive only a small fraction of
the income.
The market power of intermediaries can be attributed to two main factors:
• Lack of access to information: Farmers are far removed from the upper levels of the value chain,
and they have limited access to critical information about it (Fairfood, 2016), resulting in an
asymmetric information problem hindering their effective market participation. Geographical isolation
further exacerbates this issue, as they are primarily reliant on intermediaries for market information.
• Lack of farmers’ associations, resulting in low bargaining power: Farmers are reluctant or
unable to organize formally. When farmers do attempt to form associations, intermediaries often work
to weaken these efforts, and even when associations are established, they are frequently created
top-down by exporters (Fairfood, 2016).
FIGURE A: THE GREEN VANILLA VALUE CHAIN. FROM FAIRFOOD, 2016. OUR FOCUS IS ON THE TOP LEFT AREA, WHICH DETAILS THE
FARMERS OF GREEN VANILLA AND THE INTERMEDIARIES INVOLVED IN THE "COLLECTING & PROCESSING" STAGE.
5
Policy Background
The government of Madagascar has previously implemented policies aimed at improving redistribution
and protecting the interests of smallholder farmers, but these efforts have largely been unsuccessful.
- Between 1960 and 1993, the Malagasy government instituted The Vanilla Marketing Board
(VMB) to stabilize vanilla prices and ensure equitable profit distribution among farmers,
intermediaries, and the government. The initiative was initially successful, but ultimately failed
due to increasing corruption, inefficiency, and rent-seeking. The VMB was dismantled in 1993.
Post-reform, farmgate prices improved, but farmer benefits remained limited (Cadot et al. 2009).
- In 2013, the government upgraded licensing regulations for producers and intermediaries that
had remained in place after the dissolution of the VMB (Arrêté Interministériel N° 35255/2013),
in an attempt to reduce fraud and corruption. These regulations are still in place today (see
Policy Options below), but enforcement is challenging.
- In 2021, the Conseil National de la Vanille (CNV) was established (Décret N° 2021-548,
2021), with the objective of promoting and developing the vanilla sector in Madagascar. The
CNV is composed of both public and private sector representatives. In 2021 the CNV issued a
regulation setting a floor export price of $250 and a floor farmgate price of 75,000 Ariary ($16)
(L’Express de Madagascar, 2023). The farmgate floor price could practically not be enforced,
and the export floor caused vanilla to go unsold, GDP to drop and high inflation (Le Monde,
2023). Consequently, due to pressure from international actors, both were removed in 2023.
Currently, there is no official floor export price, but the CNV has unofficially agreed on a price of
$60 per kilogram for green vanilla. (De Monchy Natural Products, 2024). In 2022, the CNV
introduced new rules for licensing exporters (CNV, 2022) but they have been criticized for
lacking transparency and effectiveness (Le Monde, 2023).
Alongside government policies, several non-profit organizations, international organizations and private
sector actors run initiatives aimed at improving farmers’ livelihoods. Examples are the Sustainable
Vanilla Initiative and Fairtrade International. These initiatives have been able to improve the livelihood
of vanilla farmers (IDH, n.d), but do not address structural market issues.
In conclusion, attempts to improve conditions for vanilla farmers have largely been ineffective due to
non-compliance, rent-seeking and regulatory capture. These failures highlight the need for a new
approach that directly addresses these challenges to achieve systemic change.
6
Policy Goals
Four policy goals and 7 corresponding impact criteria have been identified, which will be used to
evaluate the effectiveness of policy alternatives:
Economic Efficiency
- Minimize the degree of information asymmetry across players in the bottom of the value
chain: The policy should improve farmers' access to market information, enabling them to make
informed decisions and better negotiate prices.
- Maximize incentives for collective action: The policy should encourage and support the
formation of farmer cooperatives or associations to increase bargaining power and foster
collective action.
- Minimize monitoring and enforcement costs while ensuring effective enforcement: The
policy should create mechanisms that are cost-effective yet robust enough to ensure successful
implementation and adoption.
Poverty Reduction among Farmers
- Maximize the number of farmer households that meet or surpass the poverty line (or
living income): The policy should aim to make vanilla farming a viable livelihood that can lift
farmers out of poverty.
Equity
- Maximize equitable income distribution: The policy should create a more balanced
distribution of income across the value chain, ensuring that farmers receive a fairer share of the
profits generated from vanilla sales.
Political Feasibility
- Maximize the likelihood of success: The policy should be designed with consideration for the
political landscape, ensuring it is realistic, implementable, and likely to gain the necessary
support from key stakeholders.
Resilience to Governance Risk
- Minimize the Risk of Illicit Practices by enforcing bodies: The policy should reduce the
likelihood that powerful stakeholders exert undue influence over regulatory bodies or policy
implementation processes.
7
Policy options
Policy Status Quo
As detailed in the Policy Background, two policies regulate intermediaries in the vanilla market. The
2013 policy tracks those buying vanilla directly from farmers through the issuance of producer and
professional cards (Arrêté Interministériel N° 35255/2013). The 2022 policy requires exporters to apply
for an export license by submitting proof of experience, their import license from the destination
country, financial and tax information, and a list of buyers they have traded with over the past three
years (CNV, 2022).
Facilitating Market Access for Farmers
This policy aims to create a mobile and digital marketplace that enhances transparency and oversight
in vanilla transactions, ensuring that all transactions are well-documented and regulated. The platform
would offer real-time market information and detailed insights into the value chain. A key success
criterion is safeguarding equitable access through adequate training and availability. To address
potential connectivity issues, the platform would be accessible via both SMS and internet-based
options. The service would be outsourced rather than directly provided by the government.
Targeted tax to intermediaries
This policy introduces a targeted tax on intermediaries in Madagascar's vanilla market, aiming to
redistribute the revenue generated to smallholder farmers. The tax would be collected directly at the
point of sale, ensuring immediate and accurate revenue capture. Transparency and compliance would
be further strengthened by incorporating reports from international buyers.
8
Analysis of the options
Status Quo
Economic Efficiency: Current policies aim to enhance oversight of market participants through the
issuance of export licenses, producer cards and professional cards but fall short in two critical areas:
(1) addressing the significant information asymmetry between farmers and intermediaries, and (2)
creating incentives for farmers to organize collectively, which could enhance their bargaining power.
Moreover, the effectiveness of these policies is undermined by criticisms of inefficiency and lack of
transparency (Le Monde, 2023).
Equity: The current policy does not actively promote income redistribution.
Poverty Reduction: The current policy has been ineffective in lifting farmers out of poverty.
Political Feasibility: The existing policies have been maintained for several years (see Policy
Background), suggesting some level of political feasibility. However, there is a lack of trust among
farmers and intermediaries towards the government, which contributes to undermining their
effectiveness (Fairfood, 2016).
Resilience to governance risk: The risk of rent-seeking and regulatory capture of enforcing bodies is
high (Le Monde, 2023).
Direct Market Access for Farmers
Economic Efficiency: Outsourcing a digital/mobile marketplace requires initial investment in
implementation and training, and ongoing monitoring cost. However, this policy directly addresses
information asymmetry by providing farmers with real-time market data, enabling them to make more
informed decisions. Furthermore, while it doesn't directly incentivize collective action, the increased
transparency will increase trust, which could encourage farmers to organize. This should, in the long
run, streamline operations, reduce transaction costs, and diminish the need for extensive manual
oversight.
Poverty Reduction: By improving access to information for farmers, the policy aims to increase their
bargaining power, and support them in receiving fairer payments. Furthermore, it could allow farmers to
bypass intermediaries and sell directly to international buyers, obtaining higher prices. The impact on
poverty reduction would be direct and potentially substantial if the system is well-implemented. A study
by the University of Bonn (Von Bismarck-Osten, 2021), has analyzed 4 platforms in Sub-Saharan Africa
9
similar to the ones proposed in this policy. One of them, DigiFarm, is working under a partnership with
the the National Cereals and Produce Board in Kenya (Food Business Africa, 2021). Incomes of users
of DigiFarm were reported to have increased by 30-50% on average (Von Bismarck-Osten, 2021).
Equity: By integrating mobile and digital payments—methods increasingly popular in Madagascar (IFC,
2023)—the policy would ensure documentation of transactions, enabling increased oversight and
consequently limiting the incentive to pay exploitative prices. Farmgate prices would increase to a fair
market level and, by reducing the share of profits captured by intermediaries, the policy could lead to a
more equitable distribution of income across the value chain.
Political Feasibility: This policy may face resistance from intermediaries, whose role and profits could
be diminished, but it could gain strong support from farmers and international buyers. Buyers are
increasingly advocating for more equitable sourcing models, as evidenced by their involvement in
sustainability initiatives on the ground (Livelihoods Funds, n.d.). Training will be instrumental to gather
support from farmers and ensure the digital divide does not exacerbate inequality. Evidence from
Kenya shows this can be politically feasible (Food Business Africa, 2021).
Resilience to governance risk: By increasing transparency and documentation, this policy could help
mitigate some governance risks. While it may not completely eliminate the risk of illicit practices, the
automation of transactions and the creation of clear records would make it more difficult for unlawful
activities to go unnoticed. However, the policy also introduces new risks related to data privacy and
security that will need to be addressed. It is uncertain whether the current enforcing body, the CNV, has
the capacity to manage these responsibilities. Outsourcing could offset some of these risks, provided
that the procurement and monitoring processes are conducted fairly and transparently.
Targeted tax to intermediaries
Economic Efficiency: This policy focuses on income redistribution and does not directly address
information asymmetry or incentivize collective action. Its enforcement would require substantial
expenditure and could be challenging without strong oversight.
Poverty Reduction: If tax revenue is redistributed to farmers, this policy has the potential to directly
increase their incomes and reduce poverty. However, the effectiveness of such taxes has been mixed;
for instance, similar policies in Tanzania have yielded varied results, with some instances leading to
reduced farmgate prices, where the collected tax did not adequately compensate for the reduction
(JRC, 2019).
10
Equity: This policy directly targets income redistribution, positioning it as a highly effective option for
promoting equity. By taxing intermediaries and using the revenue to support smallholder farmers, it
aims to create a more balanced distribution of profits within the value chain. However, evidence from
Tanzania suggests mixed outcomes: research shows the tax benefited large farms more than smaller
farms (JRC, 2019).
Political Feasibility: The policy may face significant opposition from intermediaries, who would bear
the cost of the tax. It could gain strong support from farmers and sustainability-focused buyers if it
effectively increases rural incomes. However, the policy could also be less attractive to international
buyers than other policy options if it leads to an increase in export prices.
Resilience to governance risk: The design and implementation of this policy carry a high risk of illicit
practices. Ensuring that the tax is fairly collected and redistributed requires robust governance
mechanisms. Without these, there is a risk that the policy could be manipulated or fail to achieve its
intended outcomes.
Impact Category
Policy Status Quo
Facilitating Market
Access
Targeted Tax on
Intermediaries
Minimize Information Asymmetry
Limited improvement
Significant
improvement
No improvement
Maximize Incentives for Collective
Action
Low impact
Low to Moderate
impact
Low impact
Minimize Monitoring &
Enforcement Costs
Moderate costs
Moderate costs
High costs
Maximize Number of Farmers
Above Poverty Line
Low impact
High impact
Moderate impact
Maximize Equitable Income
Distribution
Low impact
Moderate impact
High impact
Maximize Likelihood of Success
High likelihood
Moderate to high
likelihood
Low likelihood
Minimize Risk of Illicit Practices
High risk
Moderate risk
High risk
TABLE 1: SUMMARY OF THE ANALYSIS OF OPTIONS
11
Recommendations
Facilitating market access for farmers through an outsourced digital platform policy is a highly
promising option that can significantly address the challenges in Madagascar's vanilla sector, offering a
viable alternative to the ineffective status quo. By providing farmers with direct access to information on
the market and on the value chain, this policy empowers them with real-time, accurate data, reducing
their reliance on intermediaries. It has the potential to alleviate poverty among farmers by increasing
their share of market returns. Additionally, outsourcing the platform can mitigate governance risks
associated with low government capacity, provided that a fair and transparent procurement and
monitoring process is implemented.
However, some trade-offs must be considered. While this policy reduces the risk of illicit practices
within the supply chain, it does not eliminate them entirely, it creates new risk areas, and requires a
substantial initial investment. The high upfront costs are expected to decrease over time as adoption
increases and the digital marketplace infrastructure becomes more established and efficient. Overall,
the long-term benefits, including increased farmer incomes and enhanced market transparency,
position this policy as a strong candidate to reduce poverty, improve economic efficiency, and enhance
equity outcomes for farmers in Madagascar's vanilla sector.
12
References
Arrêté N° 35255/2013 (2013). Available at:
https://www.huilesessentiellesmg.com/index.php?r=site/display&id=44 (Accessed: 7 August 2024).
Cadot, O., Dutoit, L., & De Melo, J. (2009). The elimination of Madagascar's vanilla marketing board, 10
years on. Journal of African Economies, 18(3), 388-430.
Campbell, M. (2018). Ethically Sourced Vanilla: Certifications in the production of vanilla in the SAVA
Region of Madagascar.
CNV (2022). Élaboration d’ une liste d’acheteurs internationaux verifies. Available at:
https://www.madacamp.com/images/madagascar/AMIntention-Vanille.pdf (Accessed: 11 August 2024).
Décret N° 2021-548 (2021). Available at https://faolex.fao.org/docs/pdf/mad219800.pdf
De Monchy Natural Products (2024) Vanilla global market report - July 2024, Available at:
https://monchynaturalproducts.com/news/vanilla-global-market-report-july-2024/ (Accessed: 10 August
2024).
Fairfood (2016). Bittersweet vanilla. Available at: https://fairfood.org/app/uploads/2020/06/Bittersweet-
Vanilla.pdf (Accessed: 30 July 2024).
Food Business Africa (2021). NCPB partners with Safaricom’s integrated mobile platform DigiFarm to
enable farmers access post-harvest services. Available at: https://www.foodbusinessafrica.com/ncpb-
partners-with-safaricoms-integrated-mobile-platform-digifarm-to-enable-farmers-access-post-harvest-
services/. (Accessed: 9 August 2024).
Hänke, H. (2024). Living Income Reference Price Update for vanilla sourced from Madagascar
Herrera, J. (2021) In the world capital of vanilla production, nearly three out of four farmers say they
don’t have enough to eat. Available at: https://researchblog.duke.edu/2021/06/25/in-the-world-capital-
of-vanilla-production-nearly-three-out-of-four-farmers-say-they-dont-have-enough-to-eat/ (Accessed: 12
August 2024).
IDH (n.d.). Sustainable Vanilla Initiative. Available at: https://www.idhsustainabletrade.com/sustainable-
vanilla-initiative-svi/
IFC (2023) Madagascar’s Mobile Money Boom. Available at:
https://www.ifc.org/en/stories/2023/madagascars-mobile-money-boom (Accessed: 18 August 2024).
13
JRC (2019). The Agricultural Produce Cess in Tanzania: Effects of reform options using farm-
household model. Available at: https://datam.jrc.ec.europa.eu/datam/perm/file/b1a5f519-7933-4e07-
8ff6-4fb7d8eb672c/presentation.pdf?rdr=1724022583504 (Accessed: 1 August 2024).
Le Monde (2023) Crisis in Madagascar over hundreds of tonnes of unsold vanilla, Le Monde.fr.
Available at: https://www.lemonde.fr/en/economy/article/2023/04/20/crisis-in-madagascar-over-
hundreds-of-tonnes-of-vanilla-unsold_6023684_19.html (Accessed: 12 August 2024).
L’Express de Madagascar (2023) Andry Rajoelina - ‘Nous Devons Défendre Les planteurs de Vanille’.
Available at: https://lexpress.mg/05/06/2023/andry-rajoelina-nous-devons-defendre-les-planteurs-de-
vanille/ (Accessed: 18 August 2024).
Livelihoods Funds (n.d.). Livelihoods is a coalition of actors joining forces to reconcile man with nature.
Available at: https://livelihoods.eu/about-us/our-partners/ (Accessed: 2 August 2024).
OEC (n.d.). Madagascar (MDG) Exports, Imports, and Trade Partners. Available at:
https://oec.world/en/profile/country/mdg. (Accessed: 4 August 2024).
Tridge (n.d.). Vanilla production and top producing countries. Available at:
https://www.tridge.com/intelligences/vanilla/production. (Accessed: 30 July 2024).
Von Bismarck-Osten, M. (2021). Understanding Strategic Decisions of Digital Agricultural Platform
Companies: Six Case Studies of Sub-Saharan African Platforms.
