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Living Income Reference Price for Vanilla from Uganda and Madagascar

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Living Income Reference Price for Vanilla from Uganda and Madagascar Living Income Reference Price for Vanilla from Uganda and Madagascar Report prepared by Dr. Hendrik Hänke for Fairtrade International Dr. Hendrik Hänke Independent consultant & researcher at Department of Agricultural Economics and Rural Development, Georg-August University of Göttingen, Germany I ABSTRACT Vanilla has received increasing attention by the global public in recent years. On-going high vanilla prices, vanilla theft, and quality problems from vanilla beans harvested before full maturity have brought vanilla repeatedly to the headlines. This is a consequence of the extreme boom-and-bust cycles experienced by the natural vanilla market with long periods of excess supply, low prices and concerns about farmer poverty, and short periods of tight supply with excessive high prices but resulting vanilla bean quality shortages. A “living income reference price” for vanilla has been put forward as one reference tool to help stakeholders work towards a more stable vanilla market which would in term help both, stabilize the supply of high-quality vanilla and support vanilla farmers´ livelihoods. This report presents a study to establish Living Income Reference Prices (LIRP) for vanilla from Madagascar and Uganda, based on a methodology recently developed by Fairtrade International to determine minimum price levels that would enable the equivalent of a living wage (called a living income) for smallholder farmers of different agricultural commodities. The study analyses the costs of a decent standard of living, as well as the costs of sustainable production for vanilla farmers in both countries. The living income reference price is calculated as the minimum price needed for smallholder vanilla farmers to earn sufficient net income to afford a decent standard of living, assuming that they have a large enough farm to be “fully employed” growing vanilla and have implemented good agricultural practices leading to adequate productivity and quality. In order to estimate the benchmarks of living income and to establish the minimum “professional” productivity conditions in both countries, 250 interviews were conducted with smallholder vanilla farmers in both Uganda and Madagascar. The interviews were supplemented with focus group discussions, market surveys and stakeholder reviews. Moreover, a realistic sustainable vanilla productivity level that can be achieved by farmers implementing good agricultural practices, and a “full employment” farm size was defined in consultation with vanilla farmers, cooperatives, and both local and international buyers. Throughout the project, stakeholder feedback was systematically taken into account and integrated into the research process. II This report provides insights into the farm economics and context of vanilla farmers in Madagascar and Uganda, which are needed for calculating the minimum required farmgate price for vanilla farmers to earn sufficient return for a decent standard of living. Household sizes, levels of livelihood diversification, food self-sufficiency and costs of living differ substantially between the two countries, as well as vanilla production and its surrounding market conditions. The costs of a decent living were estimated at 5750€ (per household per year) in Madagascar and at 7297€ in Uganda, respectively. Productivity benchmarks indicating sustainable target yields for vanilla were established at 350 kg/ha for Madagascar and 500 kg/ha for Uganda, as in Uganda two vanilla harvest are possible a year. To achieve a living income, an average vanilla farming household would need a minimum farmgate price of 15.6€ to 16.6€ per kg of green vanilla. Fairtrade International would like to thank Ben & Jerry’s for their contribution to this research III TABLE OF CONTENT ABSTRACT ........................................................................................................................................................ II TABLE OF CONTENT ......................................................................................................................................... III TABLE OF FIGURES............................................................................................................................................ V TABLE OF TABLES ............................................................................................................................................ VI TABLE OF APPENDIX ........................................................................................................................................ VI 1. BACKGROUND .............................................................................................................................................. 8 2. METHODOLOGICAL APPROACH .................................................................................................................. 10 2.A LIVING INCOME ............................................................................................................................................... 11 2.B FAIRTRADE´S REFERENCE PRICE MODEL ................................................................................................................. 11 2.C SAMPLING AND METHODS ................................................................................................................................. 12 2.c.a. Sampling design and study regions .................................................................................................... 12 2.C.B PILOT PHASE ................................................................................................................................................ 14 2.C.C QUESTIONNAIRE DESIGN AND STRUCTURE .......................................................................................................... 15 2.C.D. MARKET SURVEYS ON PRICES AND LOCAL UNITS .................................................................................................. 15 2.C.E. FOCUS GROUPS ............................................................................................................................................ 15 2.C.F. LIMITATIONS OF THIS STUDY ........................................................................................................................... 16 3.RESULTS ...................................................................................................................................................... 17 3.1. LIVING INCOME BENCHMARK ............................................................................................................................ 17 A. Demographics .......................................................................................................................................... 17 (i.) Uganda ................................................................................................................................................................ 17 (ii.) Madagascar ........................................................................................................................................................ 17 B. Cost of decent living for an average household ....................................................................................... 18 (i) Model diet ............................................................................................................................................................ 18 (ii) Housing ................................................................................................................................................................ 23 (iii) Electricity ............................................................................................................................................................ 26 (iv) Education ............................................................................................................................................................ 26 (v) Healthcare ........................................................................................................................................................... 29 (vi) Clothing .............................................................................................................................................................. 30 (vi) Transportation .................................................................................................................................................... 30 (vii) Communication ................................................................................................................................................. 31 (viii) Margin for unexpected events .......................................................................................................................... 32 (ix) Total Living Income per year............................................................................................................................... 32 C. Value of self-produced food ..................................................................................................................... 33 (i.) Uganda ................................................................................................................................................................ 33 (ii.) Madagascar ........................................................................................................................................................ 34 D. Conclusion: Cost of decent living minus value of self-consumed food ...................................................
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