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Price hike in vanilla from Madagascar due to changes in conditions of supply

Jonny Clark

30th March 2016

The British love their vanilla from Madasgascar - it has a distinctive smooth texture and taste that we seem to particularly enjoy. However, changes in conditions of supply are causing a rise in its price. This, in turn, could lead to an increase in products that use vanilla as a major ingredient, such as ice cream.

According to this article from the Guardian, the price of vanilla from Madagascar could rise by 150% due to a poor harvest and the fact that some farmers are harvesting early in attempt to prevent potential thieves stealing crops.

For students about to take their AS exams, this might be a nice example of a product with changing conditions of supply. Some points:

* It shows how climate can impact on the supply and price of a product

* It shows how the price of one product (e.g. ice cream) is impacted upon by the price of a component resource

* The article suggests that the demand for vanilla may be price inelastic. Consumers are not prepared to swap to alternative artificial flavours and may be prepared to pay higher prices for ice cream with real vanilla included.

* You could argue that vanilla is supply inelastic as well. The process is labour-intensive and supply is hampered by the time it takes to dry out the initial pods before they can be used (6 months).

Possible diagrams that could be used:

Jonny Clark

Jon Clark has been teaching economics and business studies for over 25 years primarily in the Further Education sector. Before joining tutor2u, he was a senior manager at South Cheshire College in Crewe.

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