January 3, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

Produced through a process that includes the maceration and percolation of vanilla pods in a solution of water and ethanol, vanilla extract is one of the most popular flavors in the world. 

Widely used in everything from baked goods to ice creams, yogurts, beverages, puddings, and more (the list goes on and on), the global vanilla market is forecasted by Zion Market Research to grow at a CAGR of 4.7 percent between 2019 – 2026 to reach a value of $735 million. 

However, vanilla farmers don’t typically benefit from this popularity, leading Incofin to make its first investment in vanilla farming through its Fairtrade Access Fund.

Headquartered in Belgium with local teams in India, Colombia, Kenya, and Cambodia, Incofin Investment Management is an independent impact investment manager with more than EUR 1 billion (US$1.13 billion) in AUM focusing on financial inclusion in the agri-food value chain and safe water in emerging markets.

Its Fairtrade Access Fund was begun in 2012 with cooperation and support from Fairtrade International, Grameen Foundation USA, KfW, and Incofin cvso. With a mission to deliver strong social and environmental impact and with the objective to contribute to the development of fair and sustainable agriculture sectors, the Fairtrade Access Fund addresses the financial and operational needs of smallholders, SMEs, and agri-focused financial institutions. 

Cakes and Pains

Chances are, if you’ve overindulged this holiday season on vanilla ice cream, that flavor originated in the Sava region of northeast Madagascar, according to Incofin, which noted that the region accounts for 80 percent of the global supply of Bourbon vanilla.

The process of making vanilla is exceedingly delicate and labor-intensive. New vanilla orchid vines take up to four years to produce flowers. However, these flowers are in bloom for less than 24 hours, and pollination must occur the moment the bud opens. This intensity makes vanilla the second most expensive spice in the world after saffron, leading farmers to even sleep in their fields prior to harvest to deter thieves.

Crazy side note: I just learned that in the past, vanilla was also produced from castoreum – the anal gland and castor sac secretion released by beavers when staking a claim to a territory. Because it was derived from an animal, this vanilla was classed as a “natural” product, however, it is not produced this way any longer due to, you know, the horrible prospect of extracting castoreum from live beavers. Let’s resume…

The vanilla farmers of the Sava region live in small, isolated villages, often only reached by several days of travel by canoe, hiking, or traversing difficult roads. This region, where 70,000 smallholder farmers are cultivating approximately 25,000 hectares of vanilla, is also the source of vanilla for processor and exporter, Lafazza.

Lafaza Trading SARL buys premium vanilla from smallholder farming communities at fair trade prices, and then sells it at retail or wholesale levels through export channels. However, Lafaza offers its more than 1,000 farmers a difference – the company provides capacity building based on proper cultivation and curing techniques that enhance the quality of the vanilla produced – which enables the farmers to achieve organic certification. 

To bolster this work, Incofin is providing Lafaza with a capital loan of $1.5 million. For Incofin, the investment reduces the risk associated with its FAF portfolio, both in terms of product (this being Incofin’s first investment in vanilla), and in terms of geography (this also being Incofin’s first investment in Madagascar).

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan-stone@globalaginvesting.com. 

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