Madagascar: the vanilla sector not sufficiently competitive according to the World Bank

In its latest economic outlook note on the Big Island, the World Bank goes into detail on the need to reform certain key sectors, in particular the very strategic vanilla sector.

After recalling in the preamble that the country’s growth should reach 4.7% of GDP in 2019, slightly lower than the 5.1% in 2018 – under « the combined effect of a decline in external demand and slow implementation of public spending » -, the Bretton Woods Institution explains in essence that, beyond the vagaries of the economic situation, Madagascar would benefit from improving its business climate (the country is ranked 161st out of 190 in the Doing Business 2020 report). The study, entitled « Economic Outlook for Madagascar: A New Beginning?  », insists in particular on the removal of barriers to competition in certain key sectors such as telecommunications and the oriented agricultural sectors of lychee and vanilla.

Link to the World Bank note

Vanilla, a locked chain

The country’s leading export item (26% of the total in 2017), Malagasy vanilla is particularly concerned by this unvarnished fact. The multilateral institution thus explains that the green gold value chain is highly controlled and regulated, which reinforces the monopoly of the incumbents in the sector and limits the entry of new entrants. « Processors wishing to buy or sell green vanilla on controlled markets are required to demonstrate their ability to process at least five tonnes of products », while « collectors are not allowed to employ more than five agents » and « exporters are required to renew their licences every year », the World Bank deplores.

Vanilla, an essential sector of the Malagasy economy

The financial institution also notes that the registration process for the actors in the sector is managed by a group of professionals composed in particular of collectors, processors and exporters. A configuration that, again, « could constitute a conflict of interest that could prevent the entry of new operators ». Even a laudable measure such as the 2016 ban on vacuum packaging1 – a decision to ensure the quality of Malagasy vanilla – is problematic because, by limiting sales options, it « requires small farmers (without adequate storage facilities, NDLR) to immediately market their harvest to avoid the deterioration of their product », leaving them de facto at the merchant’s disposal.

1 Vacuum packaging of vanilla is the process by which green vanilla, deprived of oxygen, keeps its moisture, shape and size. On the other hand, this conditioning method stops the vanilla processing process, which results in a significantly lower content of vanillin (the molecule that gives the spice its aroma), and therefore a lower taste quality.

Read also: Madagascar: the « green gold » rush and its perverse effects

Liberalizing the market

As a result, the organization advocates facilitating the entry of new players into the market – a policy it believes would « benefit a larger part of the population » – and identifies five key measures to achieve this. Namely:

  • (1) remove the prohibition on vacuum packaging in favour of better labelling and traceability;
  • (2) remove certain restrictive regulatory barriers such as limiting the number of agents who can work with a supplier;
  • (3) improve the monitoring of price determination by the Competition Council;
  • (4) encourage international companies to carry out value chain audits;
  • (5) encourage contract farming or optimal organisation of the sector, in particular through partnerships between producers, collectors and exporters.
    All these measures, if properly applied, would make it possible to generate « productive, inclusive and sustainable growth in Madagascar ».