Over a six-month period, starting in late 2003, baker Rose Donahoe watched in disbelief as the price of vanilla climbed from $60 to $238 per gallon.
"The price was outrageous, sky high. But there was nothing we could do," says Donahoe, kitchen manager of Creative Cakes in Silver Spring.
No matter what the price, she refused to substitute imitation vanilla in the 500 wedding and specialty cakes her company makes a month, consuming eight to 12 gallons of the flavoring. "Unless you work with it a lot, you don't understand the difference between imitation and good vanilla," she says. "It's completely different."
Then in April, the price fell back to $125 per gallon, and Donahoe expects it to return to $60 by the end of the year.
The price spike in one of the world's most popular flavorings was "the biggest commodity swing in the price of vanilla in anyone's memory," says Matt Nielsen, chief operating officer of Nielsen-Massey Vanillas Inc. of Waukegan, Ill., which has produced vanilla since 1907.
Problems with vanilla beans, the seed pods of a variety of climbing orchid, began in 2000. Cyclone Hudah wiped out 30 percent of the crop in Madagascar, the island off the southeast coast of Africa that supplies 75 percent of the world's vanilla beans. At the same time, 100 tons of beans from the previous year's harvest, stored in warehouses, were lost.
Floods in vanilla-producing Indonesia also contributed to the shortages, as did a financial crisis in that country. When the price dropped, speculators stepped in and dried up the market, U.S. buyers say. That caused the price to skyrocket for subsequent harvests. Mexico also had weather-related problems with its crop.
The high prices spurred the development of vanilla plantations in Uganda, India and New Guinea. Within the past four months, stock from these countries has come on the market. Producers say the new crops should guarantee lower prices for at least the next two to three years.
Penzeys Spices, a catalogue and retail company with 22 stores in 17 states, has tracked the cycle. As prices rose, its vanilla sales fell by 40 percent. When prices recently dropped to $39.95 from $69.99 for a 16-ounce bottle, Penzeys vanilla sales rose sixfold.
"Now it's selling like hot cakes. Stores are running out of vanilla," says owner Bill Penzey. "People are buying larger quantities and stocking up."
At La Cuisine, a cookware store in Alexandria, owner Nancy Pollard recently marked down the price of a four-ounce bottle of Nielsen-Massey vanilla to $11 from $22.
"There you were, making chocolate chip cookies, and something you always paid about $8 for goes up to $22. It was a big jump, and you thought about it," Pollard says.
The single largest U.S. market for vanilla extract is the dairy industry, mainly for America's favorite, vanilla ice cream. But a significant amount also goes into the production of baked goods, candy and, increasingly, alcoholic and nonalcoholic beverages.
Vanilla sold in the United States must be labeled according to standards set by the Food and Drug Administration. It identifies "pure vanilla extract" as the natural flavor of vanilla beans distilled into alcohol. When a product contains chemically produced synthetic vanillin, it must be labeled "imitation vanilla flavoring." The key ingredient in synthetic vanilla is vanillin, a component of real vanilla and also a byproduct of conifer wood-pulp manufacturing. A third category is "natural vanilla flavor," which may contain vanillin if it was made by a natural process.