(Bloomberg) -- Ice-cream shops take cover: The vanilla crisis is still going strong.
Dunkin’ Brands Group Inc., which recently launched a task force to get to the bottom of rising input costs, said this week that commodity inflation weighed down its net margin on ice cream in the most recent quarter. Although it didn’t name vanilla specifically on its earning call, its vice president of international supply chain Pete Jensen said sourcing the specialty flavoring remains a key focus.
“We are monitoring the situation with vanilla extract prices very closely, and are working hard to mitigate the impact on our costs,” he said in an emailed statement to Bloomberg News. The task force, which includes members of Dunkin’s domestic and international R&D, marketing, finance and supply chain teams, has had some success in both supplier negotiations and reformulating menu items “to counter much of the headwinds posed by certain rising ingredient costs, including vanilla extract.”
The parent company of Baskin-Robbins isn’t the only vanilla user feeling the pinch. General Mills Inc., maker of Häagen-Dazs outside the U.S. and Canada, cited vanilla inflation as an issue during its investor day this month. And a growing number of big-food companies have been working with vanilla farmers in Madagascar to help improve conditions, cut out the middleman and ensure supply.
It’s no coincidence that food makers are thinking so much about the seemingly ubiquitous flavor, often thought of as a boring or plain choice. In March 2017, the destructive cyclone Enawo hit Madagascar, which accounts for 80 percent of global vanilla supply. It killed 81 people, destroyed crops and sent the price of natural vanilla skyrocketing. The supply crimp worsened as vanilla thieves and corrupt intermediaries increasingly took advantage of the situation.
“In addition to ripping off farmers, these middlemen mix premature vanilla with legitimate vanilla so you won’t get the full yield of vanilla,” said Michael Okoroafor, McCormick & Co.’s global vice president of sustainability and packaging innovation. “These practices result in premature vanilla and depressed farmers’ incomes.”
Before the cyclone, demand for natural, pure vanilla had already been on the rise as more companies were looking to shift from artificial flavoring in response to changing consumer tastes. Farmers hadn’t been able to keep up with increasing consumption, as it takes three to four years for plants to start producing vanilla beans, Craig Nielsen of Waukegan, Illinois-based Nielsen-Massey Vanillas Inc. said last year.
Vanilla spiked following the cyclone, reportedly propelling some prices above the cost of silver. Companies, with the support of non-governmental organizations, have been working on the ground to help repair the broken supply chain, but given the delicate process which requires farmers to hand pollinate orchid flowers on the same day as they bloom, it’s going to take time.
Big food companies from Nestle SA to Mars Inc. have been working with suppliers and supporting vanilla-producing rural communities, with some improvement efforts beginning even before the cyclone.
The higher prices and supply chain disruption are causing headaches to mom-and-pop ice cream shops and large corporations alike. At Capannari Ice Cream in the Chicago metro area, scoopers go through gallons of “Madagascar Vanilla” faster than any other flavor, and that comes at a cost.
Fortunately, owner Jim Capannari said he managed to purchase most of his yearly vanilla supply before prices spiked. Capannari said he considers himself lucky because vanilla costs soared to about six times more than what he normally pays.
“I would say our ‘Madagascar Vanilla’ is probably our number one flavor,” he said, noting he re-upped his supply in just the nick of time. “I always keep more vanilla than I need.”
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