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Thursday June 20th, 2024

Wild times as Madagascar rides vanilla price bubble

(MADAGASCAR) Hit by rampant speculation and a collapse in production following cyclone Enawo, the price of vanilla — Madagascar’s largest export — has surged in recent months.

Ice cream, aromatherapy, perfume and haute cuisine: all use the spice sourced from the Indian Ocean island which accounts for about 80 percent of global production.

The sudden cash bonanza has threatened to fuel crime and slash quality.

On the single paved road in Ampanefena, a rural community in the northeast of Madagascar, youths pass the time doing wheelies on their high-powered Japanese motorbikes.

"It cost 200 million Malagasy ariary (12,00 euros, $14,000)," claimed Akman Mat-hon, 17, atop a Kawasaki too large for his frame. His father is "in vanilla" and bought the bike as a gift.

Business is booming: since 2015 the price of the spice has soared relentlessly to "a never-before seen peak of between $600 and $750 a kilo,"(510 and 640 euros) according to Georges Geeraerts, president of Madagascar’s Group of Vanilla Exporters.

Since the market was liberalised in 1989, the price has fluctuated wildly — from $400 a kilo in 2003 to $30 in 2005, where it stayed for roughly a decade.

But demand eventually outstripped the supply of around 1,800 tonnes-a-year, spurred on by resurgent calls for organic products, speculation by financiers — and by tropical cyclone Enawo which ravaged part of the production zone.

Markets in the vanilla-producing Sava region were saturated almost overnight with motorbikes, smartphones, solar panels, generators, flat-screen televisions and gaudy home furnishings.

– ‘It’s a free-for-all’ –

"The banks struggled to keep up with the pace," said a French trader speaking on condition of anonymity.

"Money no longer has any meaning, people think it’s a free-for-all, it’s becoming anarchy," added Vittorio John, a vanilla grower in his 40s.

The price explosion has led to increased thefts from vanilla plantations.

Some growers sleep in their fields to guard their precious crop and several thieves have been beaten, imprisoned or even killed.

"We pay two police to secure the village," said Patrick Razafiarivo, 42, an intermediary between the farmers and the exporters who admits to hiding vanilla underneath his mattress.

"The police made us pay for their 4X4s," said a French exporter.

The authorities admit that they were caught unprepared for the boom.

"The root of all the problems is insecurity caused by a lack of capacity, staff, and force discipline," said Teddy Seramila, the Sava region’s development director.

Fear of thefts in the plantations has also forced some growers to pick their pods prematurely, resulting in declining standards.

"People are doing all sorts. They’re vacuum packing vanilla that can go bad. Non-experts can be misled over the quality," said an exporter from Madagascar.

"Nothing distinguishes a good pod from a bad pod, you can’t tell the difference," exporter Lucia Ranja Salvetat told AFP.

– ‘Tearing ourselves apart’ –

The vanilla trade remains largely unregulated in Madagascar, and the scant rules are seldom enforced.

Each buyer can freely tour villages and negotiate prices directly with the farmers or call intermediaries to get a quote.

"There should be a law applied to everyone but instead people do as they please," said one of the exporters from Madagascar.

"Barely any of the local authorities levy any taxes," said Seramila — even though vanilla makes up five percent of the country’s gross domestic product.

Just 21 percent of people in the region have access to drinking water and only six communities out of 86 are electrified.

"Honestly, we can’t succeed in this job. Everybody is manoeuvering and it’s the big exporters that are setting the example," said Razafiarivo.

Madagascar’s bourbon vanilla is a product of expertise handed down from generation to generation and has been considered the best in the world.

But concerns over quality could deter buyers, handing a victory to the country’s main vanilla exporting rivals — Indonesia and Uganda.

"Everything must come to an end and it’s almost certain that there will be a price fall," predicted Geeraerts, the export association chief.

"Vanilla enabled me to go to school, it’s a noble commodity. When the price falls, the opportunists will leave — but we will always be here," said Salvetat.

"We are the old-guard who have forged our future and our children’s future with vanilla — but we are in the process of tearing ourselves apart." (AFP)

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Sri Lanka shares debt management experience at global forum

ECONOMYNEXT – Sri Lanka has shared its experiences at a forum on debt management to “provide lessons for others”, State Minister of Finance Shehan Semasinghe has said.

Semasinghe spoke on “The Role of Debt Management in Navigating Crises” at the 14th Debt Management Facility (DMF) Stakeholders’ Forum, in Livingstone, Zambia.

“I shared the experiences of Sri Lanka which can provide valuable lessons for others and explored the critical elements of capacity building and sound institutional practices in managing debt, particularly in the context of economic challenges,” Semasinghe said on X (twitter).

“Sri Lanka’s experience demonstrates that effective debt management is not just about managing numbers but also about building robust institutions and capacities.”

The journey underscores the importance of transparent, accountable governance and the need for international support and cooperation in times of crisis, he said.

“Sri Lanka prioritized addressing gaps in public debt management by drafting a consolidated Public Debt Management Act, ensuring clarity and legal robustness and establishing a centralized Public Debt Management Office with operational autonomy.

“The role of debt management in navigating crises is multifaceted and critical. Further, by investing in capacity building, adhering to sound institutional practices, and strategically managing debt restructuring and liability operations, countries can better withstand economic shocks and pave the way for sustainable recovery.”

Developing countries face severe debt distress as they are more vulnerable to external shocks, Semasinghe said, and “managing global debt requires coordinated international efforts on debt restructuring where necessary, timely fiscal policy adaptation and help sustainable economic growth.”

The state minister also pointed out the financial impact of climate change was an emerging challenge, as countries need investment to mitigate and adapt to climate impacts, “especially through non-debt creating inflows, which would require private capital mobilization.” (Colombo/Jun20/2024)

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Sri Lanka rupee closes stronger at 305.10/30 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed stronger ahead of the long weekend at 305.10/30 to the US dollar on Thursday, up from 305.40/55 to the US dollar Wednesday, dealers said, while some bond yields edged up.

A bond maturing on 15.12.2026 closed at 10.45/80 percent, up from 10.35/75 percent.

A bond maturing on 01.07.2028 closed at 11.20/45 percent.

A bond maturing on 15.09.2029 closed at 12.00/15 percent, up from 11.95/12.35 percent.

A bond maturing on 01.12.2031 closed at 12.05/25 percent.

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Sri Lanka stocks close up, JKH trade pushes turnover

ECONOMYNEXT – The Colombo Stock Exchange closed up on Thursday, data on its site showed.

The broader All Share Index closed up 0.19 percent, or 23.11 points, at 12,249; while the more liquid S&P SL20 Index closed up 0.15 percent, or 5.33 points, at 3,610.

Turnover was 2 billion. Nearly half of this (Rs980mn) came from a crossing on John Keells Holdings Plc. The share closed down at 202.00.

“There were several crossings today which pushed turnover,” market participants said.

“Institutions and high net-worth activity drove the market, while the retail investors we feel are still about uncertain and adopting a wait-and-see approach.”

Melstacorp Plc was among the companies that saw active volumes (Rs194mn) in the day. The share closed up at 87.10.

Top contributors to the index included TeeJay Lanka Plc (up at 41.70), Sampath Bank Plc (up at 79.50), Hatton National Bank Plc (down at 201.00). Hayleys Plc (up at 105.00) and its subsidiary Hayleys Fabric Plc (up at 46.60) were also positive contributors. (Colombo/Jun20/2024)

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