1. The prices of vanilla have increased over past 10 years. Vanilla is the second most
expensive spice after saffron and at current levels is more expensive than silver, which is
trading just above $530 a kg according to (Terazono, 2018). It soared from about $25 a kg in
2008 to $600 a kg in 2018 according to Craig Nielsen of US vanilla and flavourings group
Nielsen Massey. The highest prices of vanilla in 2017-2018 is tremendously high comparing
to the prices of vanilla in 2008-2010. The highest percentage change of the price of vanilla is
355%, due to the prices of minimum in 2015 is $90 and the prices of maximum in 2016 is
$410 according to Cook Flavoring Company.
2. Vanilla takes about three years for a new plant to
begin flowering. Each flower will only produce one vanilla pod, which is full of seeds in an
oily liquid according to (Hartman, 2018). Vanilla is not just for ice-cream, it’s also popular
across sweet foods, cookies, alcohol and cosmetics. The prices of vanilla are increasing due
to the more demand of the vanilla. The diagram above shows the demand and supply curve of
the vanilla, we can see that as the demand of the vanilla increase, the prices of vanilla
increase, and it causes the less quantity of the vanilla. The consumers will buy the vanilla is
because of its taste and preferences. No one will buy the things that they don’t want it. If
consumers have their income higher, they will be willing to buy the vanilla easily due to their
preferences, so that they will demand more, and the demand will shift right. The supply
factors can also cause the prices of increase in vanilla. The main reason for the high price is
because there is a cyclone in Madagascar which damaged a lot of plantations in March 2018,
said (Gale, 2018). Due to scarcity, the increase in cost of production will lead to the less
production of vanilla, so the prices will increase. And there are no subsidies for the vanilla, so
farmers in year 2007 decide to stop producing the crop due to the issues of disaster, but the
vanilla back “in” again in year 2015 according to (Kogler, 2018). The increase in prices of
vanilla is not helping the Madagascar residents, the earn not much from the plantations and
need to face the problems of robbery of the crops from the fields according to (Shreeves,
2018). Due to the scarcity of the vanilla, the stolen of the vanilla causes the prices go more
even higher, so that the farmers and robbers are one of the supply factors that cause the
increase in prices of vanilla. To avoid the escalating of costs of vanilla, farmers extract a
synthetic flavour called vanillin from wood and petroleum and is widely use across industries
(Wearn, 2018).
3.
4. Vanillin is a vanilla extract alternative made from wood pulp. Vanilla beans are
highly cost and take a long time to produce it so there is a same flavour that taste like vanilla
and is called vanillin. The factory of the vanillin is to reduce the cost. Vanillin is not
producing in the way as how the vanilla produced from vanilla beans, it is synthetic and
produced by using petrochemicals and by-products from the paper industry according to
(Edward, 2014). It smells like vanilla. It can also be used as perfumes. Vanillin is a substitute
goods of vanilla. Substitute goods are two alternative goods that could be used for the same
purpose. So, if the price of vanilla increases then the demand of vanillin will increase.
There is an increase in the cost of production for vanilla. It will cause the supply curve to
shift left. The excess demand of rationing effect will cause a contraction along the demand
curve. Less vanilla will be bought and sold at the higher price of P2Q2. As more consumers
demand less vanilla due to the increase in price, there will be an increase in demand for all
substitute goods such as vanillin. The demand for vanillin will increase and shift from D1 to
D2. As price of vanilla increases, the quantity demand of its substitute good vanillin will
increase.
5. The market has taken different strategies in order to due to the increase in price of vanilla. A vanilla strategy is a common or popular approach to investing or decision making in business.