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North-east Madagascar is known for its production of vanilla and spices, a specialization that eventually led farmers to abandon food crops. From 1997 to 2006, an IFAD-supported project fostered a global approach linking production and marketing. It included activities to develop commercial vanilla production while promoting traditional rice farming. It also implemented a network of credit unions to provide access to financial services for poor farmers who were excluded from the banking system and relied on high-interest loans from other sources.

Madagascar is the world’s leading vanilla exporter, accounting for half of global production. Most of the country’s vanilla production is grown in the fertile area of Sava, in the north-east, where about 70 per cent of the population depends on the lucrative and fragrant spice. The region is relatively wealthy compared to the rest of the island, but there are wide disparities between small-scale growers and larger estates that collect and process vanilla and sell it on the international market.

IFAD’s recently completed North-East Agricultural Improvement and Development Project was initiated in the late 1990s precisely to tackle the issue of fairer distribution of economic benefits in the region.

It also set out to help small farmers learn new skills to improve their revenues from vanilla production and to better manage the irregular income from the sale of that crop. 

The project encouraged farmers to form vanilla growers’ associations to increase their bargaining power and negotiate better prices for their crop. Farmers learned to process vanilla and store it properly so they can sell it when market prices increase.

The project also created more than 400 local associations of various types. They include about 10,000 members, and membership is still growing.
“Until now, small farmers sold their vanilla green just after it was picked,” says project manager Fabien Randriambololona. “Fresh vanilla doesn’t keep, so they had to sell it immediately at a low price, as buyers would come around to collect it straight after harvest.” 

Credit unions aid financial planning

The project also established a network of credit unions, which allowed farmers to access financial services.  

“Linking production and sales to a system of savings and credit is probably the most successful aspect of the project,” says Benoit Thierry, IFAD country programme manager for Madagascar.  “Previously small rural producers had no way of saving and would spend their sudden income on disposable goods such as stereos and bicycles. This left them in a dire situation for the rest of the year, as vanilla is sold only between June and October, and they neglected subsistence farming.”

A total of 18 credit union branches were created, exceeding the target of 14. They covered 43 communes. The Canadian microfinance organization Developpement International Desjardins implemented them in the field.

The project earmarked US$1.2 million for the credit union component alone, out of a total of about US$16 million. The rest was allocated for improving agricultural production – mainly rice irrigation, infrastructure and local organization.

Restoring rice production

Rehabilitation of the production of rice, a staple food in Madagascar, was a major part of the project, accounting for nearly 40 per cent of the total budget. The project achieved noteworthy results in that sector, particularly through an irrigation programme that restored about 4,600 hectares of small plots for rice growing, and through introduction of intensive farming techniques and more productive rice varieties.

“The proportion of land used for subsistence farming rose from 5 to 30 per cent. That is definitely a success for the project,” says Paulin, former project manager and current governor of the region.

Education pivotal to income management

Despite its success, the project had some drawbacks, particularly because it coincided with a period of highly volatile vanilla prices. Prices soared to a level between US$450 and US$500 per kilogram at their peak in 2003, before plummeting to a current level of US$25 to US$70 per kilogram, which was their level at the very start of the project in 1998. The price surge was partly the result of a devastating cyclone in 2000, which destroyed a portion of the plants and created a shortage.

It was less attractive for farmers to focus on rice production while vanilla prices were surging, but after the collapse of the vanilla market they found it difficult to honour their loans with the credit union, mainly because of a lack of savings. While credit granted since the start of the project amounted to a total of about US$32 million, savings averaged only about US$10 million to US$15 million.

Farmers used only half of the borrowed amount for investments, spending the rest on improving their quality of life. This was a clear demonstration of the need to educate farmers to better manage their income and use financial facilities for long-term investment.

Income diversification is the way forward

The project has come to a close, but the situation in Madagascar remains difficult.

Vanilla prices linger at the lowest levels, and because other tropical countries started to grow vanilla after the 2003 price hike and increased international tonnage, this has kept prices down.

But the project managed to increase the proportion of revenues small farmers receive from vanilla, and it rehabilitated rice production to make them self-sufficient, reducing the number of poor families. It will now be necessary to follow up at the local level.

Farmers’ associations will have to continue their activities and expand to include a larger proportion of the population.

They will also need to diversify production further and rely less on the volatile vanilla markets. The network of credit unions will have to attract more members and be used more as a facility for savings rather than for credit alone.

Introduction of an international fair trade certificate, which has the aim of guaranteeing a better income for small-scale producers of various commodities, will also help improve life for small-scale growers in Madagascar.