Wednesday, August 5, 2020

Vanilla- Demand, Supply, Elasticity and Market Failure

The flavorful story of vanilla

With so many of us staying at home these days and spending more time in the kitchen, vanilla sales, of all things, are booming. Correspondent Seth Doane travels to the island of Madagascar – which supplies 80% of the world's vanilla – to learn more about the extraordinarily colorful (and sometimes unsavory) story of a familiar spice, and why this valuable cash crop can be worth more by weight than silver

I am sure most of us can identify with the outcome of increased family cooking due to Covid-19. My twelve year old daughter has been baking up a storm, with a preference for the exotic. 

1. Use the economic principles of opportunity cost and leisure time to explain why people are choosing to produce the sophisticated product as opposed to just simply preparing regular meals. Link your explanation to the 'increased vanilla sales'...."in recent months vanilla sales have doubled' [minute 0.42-.46 of video].

2. What are the respective elasticity that you would associate with vanilla? [PED, PES, XED and YED]?

The video mentions Cook Flavoring Company run by Josephine Lochhead [minute 1.18-1.35]. The company specializes in making vanilla extract and relies on importing tonnes of raw material. Madagascar also supplies 80% of the world's vanilla. 

3. Explain the variation of PES across the vanilla supply chain.  [Madagascar Farmer, Madagascar Spice company, Manufactures and suppliers of vanilla products-Cook Flavoring Company].

4. Using the information from questions 2 and 3, justify a government policy that represents an attempt to act in the best interest of Madagascar's vanilla farmers.

The video references the Rain forest of Madagascar? Do you know the value of rain forest? Check out the url below.

Did you know that Unesco has declared these to be world heritage sites. See url below.

5. How might the success story of vanilla result in market failure, specifically using the rain forest as your lenses of focus. 


6. Explain the link between poverty and market failure [see minutes 5.48 - 6.30 of video... 'poverty is the most challenging thing for the environment']

Fun 'Facts': Interestingly, story has it that the hand pollination technique was discovered by a slave boy [2.38-2.46]. 

7. How would you incorporate this information as part of an anti black racism policy?

It is suggested that there are around 40 million vanilla orchid plants in Madagascar. 

8. Make a hypothetical case where your thesis is that on any given 'farm', they should only hand pollinate 50% of blooming plants. Engage the concept of poverty amidst plenty in your response, as well as illustrating your reasoning via the total revenue graph.

9. Comment on despite the vast 'vanilla wealth' not only is the country one of the poorest in the world, but they also have the lowest vanilla producing wage of any country? [see minutes 4.27-5.30]. Include in your comment a reference to the theory of comparative advantage. 

10. Vanilla is a work of Art and you just cannot treat it like a bag of sugar? Comment on this statement.