Almonds, Vanilla & the Giant Pool of Cash

Almonds and Vanilla, often combined in desserts, coffee drinks and other tasty products, are fascinating examples of global trade’s enormous impact on agriculture.  They are grown almost at opposite ends of the world from each other, but as crops they have many things in common. They are both perennials grown for their aromatic seeds that take several years to start producing.  Each has its own very specific climate requirements that can only be met by a few growing regions worldwide.  And they are both commodities that, once processed, have a long shelf life that enables them to be easily and cheaply shipped around the world.
Even more interestingly, both almonds and vanilla also rely heavily on bees for pollination during a very short window of time.  The California almond crop requires so many bees that they must be brought in from other states.  Vanilla can only be pollinated by a single type of bee native to Mexico.  In its absence, the flowers must be individually hand-pollinated with an eyedropper.  That is just one factor making vanilla an enormously labor-intensive crop — the other is the harvest of the tiny, fragile beans.  As a result, most of the world’s vanilla comes from grindingly poor countries with large numbers of people desperate for work, such as the island nation of Madagascar off the coast of Africa.
These very specific requirements for producing the two crops have limited the amount that can be produced annually, which keeps their prices high as long as demand is growing.  And for these two popular foods, it is definitely growing.  As a result, both have attracted the attention of “big money” — commodity traders, hedge funds, pension funds and private equity firms.  I’ve heard this referred to as a giant pool of cash, sloshing around the world.
Almonds have always been California’s highest value crop and also one of its most widely produced ones.  But in the last five years, both the acreage and the value of the crop has exploded.  It’s rare for this to happen in farming, where prices and planted acreage tend to go in opposite directions.  The increased demand has been driven partially by domestic markets, but also by the popularity of almonds in China, where they cannot be grown.
The increasing price of almonds has led to a bidding war for good land with enough water to grow the crop.  Since 2012, higher almond prices have caused the value of land in the Central Valley to double, forcing out other crops that can’t “pay the rent”.  Landowners are selling out to hedge funds and state pension funds.  Farmers that can afford to are borrowing against the increased value of their land to put in orchards.
Meanwhile, in the poor island nation of Madagascar, high vanilla bean prices are distorting the local economy in similar, yet distinct ways.  Farmers there have experienced so much theft of their crop that they have been forced to hire round-the-clock security guards, eating up most of the increase in their income.  And as is often the case with farm commodities, most of the profits go to the brokers and processors who buy, cure and process the vanilla beans.  They are driving brand new sports cars and building mansions thanks to the global demand for the luxury commodity they trade.  The majority of the population, meanwhile, lives in abject poverty — although less poor than they would be without the vanilla.
There is a vocal minority of people who complain that farmers should grow food for the people who need it locally rather than goods that will shipped thousands of miles away, especially if they use shared public resources such as water.  But in the end, farmers — whether in California or Madascar — are going to plant the crops that produce the best return for them.  If they don’t, their neighbors will.  And more and more, around the world, the “neighbor” is a hedge fund.


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