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By N P Chekutty Set up to protect the interests of vanilla-growers in India, Vanilco is a model for farmers who face volatile market conditions and monopolies within the market
Vanilla India Producers’ Company Ltd, an agro-producers cooperative, is a unique and very successful effort aimed at protecting agricultural producers against the vagaries of a volatile and globalised market, controlled by cartels of international trading agencies that monopolise the spice trade. Launched in October 2004, with its registered office in Kochi, Kerala, Vanilco, as the organisation is known, is the first-ever attempt in India to set up a producers’ company to process and market vanilla, a spice that gives the mouth-watering flavour to ice-cream, cakes and chocolates. Vanilco was set up under a 2002 law, piloted by then Union Commerce Minister Arun Jaitley, which promoted the establishment of producers’ companies, making use of provisions under the Companies Act and the Societies Act. “We had to set up Vanilco, as vanilla producers in Kerala and other south Indian states like Tamil Nadu and Karnataka, where it is grown, were at the mercy of international trading companies that had an octopus-like grip on the trade,” says Fr Mathew Vadakkemuriyil, chairman of the company and a respected farmers’ leader in Kerala. Fr Vadakkemuriyil and the Indian Farmers Movement (Infam) he heads have been responsible for a number of innovations in recent years aimed at protecting the interests of the ordinary farmer. He says vanilla farmers, who made a killing in the 2002 and 2003 harvesting seasons when the price of vanilla shot up to as much as Rs 3,850 a kg, found themselves at the receiving end during the next season when prices plummeted to below Rs 50 a kg. This sudden price fluctuation was a result of two things: a massive increase in demand for organic vanilla that was replacing the synthetic and semi-synthetic varieties used to flavour food products worldwide, and disastrous losses in the vanilla crop in Madagascar, one of the major producers in the world, late in 2000 and 2001. As supplies of organic vanilla fell far short of demand, the price of vanilla in the Indian market registered a more than ten-fold increase, bringing a windfall to growers in India. But the riches brought their own pitfalls: farmers who once grew vanilla as an inter-crop, along with rubber, coconut, bananas, etc, now greedily cut out their traditional crop varieties and took up vanilla farming in a big way, confident that prices would remain high for a long time. The global shift to food products with organic flavours may have been one reason for the farmers’ confidence, but many countries including the United States, one of the biggest consumers of the product, reacted differently. They allowed semi-synthetic varieties to replace organic ones. The result was a huge crash in vanilla bean prices in south Indian spice markets when, in 2004, agents from international food companies refused to pay anything more than Rs 50 a kg. “They were manipulating the markets and the farmers were in a trap as they had huge stocks after having invested heavily in the ‘magic beans’ that promised them instant riches,” says M C Saju, a vanilla-grower in Kottayam who now works with Vanilco. He says thousands of farmers took huge loans for the shift to vanilla; many abandoned their other crops to make room for the new one. When vanilla prices crashed they had to resort to distress selling, as the market was in the grip of cartels and they had no way of extracting the vanilla fluid in order to develop their own value-added products. It was then that the idea of a farmers’ collective came up. The Vanilla India Producers’ Co Ltd was established in October 2004, just as the season peaked and vanilla-growers faced an uncertain future. “We decided to buy vanilla at Rs 250 a kg from the farmers who registered with us, and we were able to compel the international buyers to raise their price per kg,” says Saju who points out that Vanilco mopped up 50 tonnes of vanilla last year in three months of its operations. Vanilco had a simple strategy: it operated on the basis of deferred payment and took over the stocks with a promissory note. The stocks were then processed and preserved for disposal at a comfortable price to foreign buyers. This market intervention proved effective as, this year, at the start of the season (October-December), the open market procurement price of vanilla rose from Rs 50 to Rs 150 (cash down). Vanilco offers to pay Rs 250; the organisation will procure 200 tonnes this year while the rest is expected to be absorbed by international buyers. Vanilco, operating under the Companies Act, has two types of membership: A-class members, ie farmers who pay a membership fee of Rs 10,000, and B-class members who are primarily societies of vanilla-growers and pay a membership fee of Rs 20,000. While A-class members sell their produce directly to the company, B-class societies collect the beans from their own members and sell them to Vanilco. By the end of the first year of operations, Vanilco had a membership of around 3,000. It has permanent collection centres in all the important vanilla-growing areas, and two processing centres, one in Kerala and the other in Tamil Nadu. Vanilco has been able to develop a number of value-added products, like vanilla syrup, for sale in local markets. It has also entered into an agreement with IIT-Mumbai for the extraction of vanilla fluid to develop value-added products. Already, Vanilco has persuaded major companies like Amul and Milma to use its product in their ice-creams and chocolates, and once this trend gets going “we will find that our local production of organic vanilla will not be sufficient to meet our own requirements,” says Saju. A major problem vanilla-growers face is lack of proper facilities to extract vanilla fluid. Beans have to be processed and properly treated at sophisticated plants, in a process known as ‘super critical fluid extraction’, to make Indian vanilla products globally competitive. Vanilco is now thinking of setting up a plant in India. But Vanilco’s main role is to serve as a mechanism to protect the interests of vanilla-growers. “We don’t want to drive out competition; once the procurement price reaches a comfortable level we will withdraw from the market,” says Saju. The focus then will be on developing a local market for vanilla products, as there are 12 different value-added products in the global market. The success of Vanilco has emboldened the government to promote similar initiatives among growers of other farm produce like apples, bananas, oranges, etc, all of whom face similar problems. (N P Chekkutty is a journalist based in Kerala) InfoChange News & Features, December 2005
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