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Macro Thoughts

Chinese currency which is -8.8% year on year basis is surely a very
visible proxy. If this all turns ballistic, then this is going to fly
through 7.00 and the Chinese will surely use the value as currency as
push-back. If they do, they will be pushing an open door.

[the additional risk of an asset moving more than 3 standard
deviations from its current price, above the risk of a normal
distribution].

''What's your road, man? - holyboy road, madman road, rainbow road,
guppy road, any road. It's an anywhere road for anybody anyhow. Where
body how?" -

Jack Kerouac's On the Road is an iconic Novel and is considered a
defining work of the postwar Beat and Counterculture generations, with
its protagonists living life against a backdrop of jazz, poetry, and
drug use. When I re-read these books, I cannot help feeling that the
World has lost its wide-eyedness and innocence. I am also tempted to
get myself an open-topped Car and just take off and find out what
exactly is going on. Jim Rogers who was the co-founder of the Quantum
Fund and Soros Fund Management in fact did precisely that on a motor
bike and called his book ''Investment Biker''

Of course it was George Soros and his subsequent Partner Stanley
Druckenmiller who forced the Pound Sterling out of the Exchange Rate
Mechanism on Black Wednesday 16 September 1992. I recall that day in
slow motion and as if it were a news reel. I was then on the Trading
Floor at Credit Suisse First Boston and the Speed of thought and
Execution I witnessed that day, I never witnessed again ever. Permit
me the indulgence of dwelling on that day for a moment. At 10:30 AM on
16 September, the British government announced a rise in the base
interest rate from an already high 10 to 12 percent to tempt
speculators to buy pounds. Despite this and a promise later the same
day to raise base rates again to 15 percent, dealers kept selling
pounds. On my left was the Proprietary Trading Desk and he lent
billions and billions of Pounds at 15%.

I asked ''What are you doing?'' because the Desk was at that moment
the only desk in the entire City of London on that side everyone
desperately was trying to hedge their Books.

He responded ''Aly-Khan Its not possible for Mortgage rates to be at 15%.''

That was his insight and that day he did not make as much as Soros but
must have been close. By the evening, Norman Lamont the Chancellor had
capitulated the Pound was gone in a Puff of Smoke and interest rates
were back in single digits.

Last week the Pound traded below $1.2100 and is now in danger of
taking out its post-referendum low [$1.1860 but there is considerable
debate about this number because it happened in the middle of the
night when Gremlins and Goblins stalk the FX markets] after which the
only significant landmarks left would be the low set in 1985, a few
months before finance ministers agreed in the Plaza Accord to limit
the strength of the dollar and then, only a few cents lower, parity
with the dollar. As I watched the Pound fall like a stone, I could not
help wondering if this Sterling moment is precisely like it was in
1992, a No Brainer.

'Boris isn't bluffing. Every action, every appointment, every word
since he entered Number 10 signals the same thing: Britain is leaving
the EU on 31 October' said the Telegraph's Daniel J Hannan.

The Key question is this. Can Prime Minister Johnson self-eject
Britain? Can he be stopped? This is a political calculation. Prime
Minister Johnson has elected to take quite properly an ''Impossible is
Nothing'' and ''Can-Do'' political posture but the bottom line is can
he swing it?

if he can swing it then he has to face down the "whispering death"
[Michael Holding who was thus nicknamed because He was exactly that
when he opened the bowling for the West Indies] that will be the
Foreign Exchange markets. London’s Capital Economics conducted an
exercise for the dollar-sterling exchange rate, and found that for
every 10-percentage-point increase in the chance of “no deal” equates
to the pound losing 3.5 cents on the dollar. So if there is really
still a 65% chance of “no deal,” sterling stands to drop an additional
22 cents or so. [John Authers] Thats Parity right there. We are
currently experiencing the Bow wave of what could metasize into a
shock wave.

The Tariff warfare, sanction and linguistic warfare Specialist slapped
a 10% tariff on the remaining $300b of Chinese imports. US 10-Year
Treasury Yields sank below 1.90%. The entire German Yield curve went
negative. The World’s pile of negative debt jumped  to more than $14tn
for the first time ever. Emerging Market currencies went into a
Tail-Spin. The Market scooped up Gold, the Swiss franc and the Yen.

The most important currency to watch right now is the USDCNH which was
last at 6.9738 on the off shore markets. It could slice through 7.00
like a hot knife through Butter.

"We are sitting in a vehicle whose wheels have fallen off," Derek
Matyszak, a senior researcher at a South African think tank, the
Institute of Security Studies, told AFP about Zimbabwe but that might
well apply to the FX Markets, momentarily.

President Trump keeps talking about weakening the Dollar. I find it
curious that ''such a stable genius''  has yet to calculate that a
strong Dollar is infinitely better and if he is serious about his
warfare strategy he needs to add currency warfare to his Tariff,
sanction and linguistic warfare Arsenal. My Perspective about the
Dollar is this [and note well its just a fraction under its 2019 high
even after a rate cut]; There is very little President Trump can do.
In fact the risk is this that when the market sees he is powerless,
the Dollar might lift off like the proverbial Parabola.

Home Thoughts

MAKALU IS THE world's fifth highest mountain—an icy giant 14 miles
west of Everest that straddles the border of northeastern Nepal and
Tibet. Its four sharp ridges ascend almost vertically toward a
27,765-foot summit that's formidable to even the most experienced
climbers. Since 1955, there have been fewer than 300 recorded attempts
to scale it, roughly a third of how many were made at its more famous
neighbor last year alone.
"I see a photograph as a question posed, rather than an answer or a
statement," he says. "These voyages into nature with a camera have
been as much an inner journey as an outward exploration."

“Have you ever climbed a mountain in full armour? That's what we did,
him going first the whole way up a tiny path into the clouds, with
drops sheer on both sides into nothing. For hours we crept forward
like blind men, the sweat freezing on our faces, lugging skittery
leaking horses, and pricked all the time for the ambush that would tip
us into death. Each turn of the path it grew colder. The friendly
trees of the forest dropped away, and there were only pines. Then they
went too, and there just scrubby little bushes standing up in ice. All
round us the rocks began to whine the cold. And always above us, or
below us, those filthy condor birds, hanging on the air with great
tasselled wings....Four days like that; groaning, not speaking; the
breath a blade in our lungs. Four days, slowly, like flies on a wall;
limping flies, dying flies, up an endless wall of rock. A tiny army
lost in the creases of the moon.”
― Peter Shaffer, The Royal Hunt of the Sun

Political Reflections

Home Minister Amit Shah urged members of parliament to discuss the
legislation that seeks to end autonomous status for Muslim-majority
Kashmir, which allows only residents to buy property and hold state
government jobs.

“I order you not to intervene in my operation. The tanker is under my
control. Do not put your life in danger”. This is exactly what the
Iranian IRGC naval officer told the commander of the Foxtrot 236 when
Iranian special forces were about to board the tanker Stena Impero.
But why would he warn the British Navy “not to risk their lives”?
The British Navy’s radar sweeps had discovered active mode missiles
radar tracking them by means of their semi-radar homing from different
launch platforms- main radars which could easily create a saturation
attack designed to put the ship in a helpless position and eventually
destroy it. The Iranian missiles were ready to firehad the commander
of the UK vessel decided to engage with the Iranian fast boats.
Iranian missile platform launchers spread all along the Iranian coast
overlooking the Straits of Hormuz had the four US vessels and the one
UK naval ship in their sights, ready to engage. Other Iranian armed
drones were in the air, also ready to engage, waiting for orders to
dive on their selected targets. Iran has not revealed, to date, other
more sophisticated missiles that it has manufactured and could put in
service in case of war.
The UK commander of the Foxtrot 236 Royal Navy decided to let go of
Stena Impero and allow the diplomacy of his government to take over,
to avoid the potentially serious casualties inevitable in the case of
a military confrontation.

I guess IN THEORY a world leader could say they’re going to impose a
10% tariff on Chinese goods, causing stock market to plummet, then
they & their rich pals could buy a ton of deflated stock, then lift
the tariffs & watch their new stock value skyrocket. But that’d be
cheating.

President Trump is highly tuned to the markets and in fact something
of a c21st artiste. His positive ‘’Trade War’’ tweets are timed around
the US Market hours and designed to soothe, massage and finesse US
asset prices and he turns more ne- gative in Chinese trading hours.

Of course, Carl Icahn has stayed real close.

International Markets

EVERY TIME it seems more likely that Britain will leave the EU without
a deal, sterling falls against the dollar. Boris Johnson, who became
prime minister on July 24th, has talked up his willingness to
countenance a no-deal exit at the end of October. Since he moved into
Downing Street, sterling has lost about 2% of its value on a
trade-weighted basis. It is now at a two-year low against the dollar.
Expect further declines as exit day approaches.
On March 23rd a market opened on Betfair Exchange, a betting website,
on whether Britain will leave without an agreement. Punters have so
far bet £1m ($1.22m). Since the start of April (when the original
Brexit deadline expired), a ten-percentage-point rise in the
probability of no-deal on Betfair has been associated with the pound
losing $0.03.
This correlation is robust enough to allow for educated guesses about
where the pound might land if Britain does end up crashing out. If the
same relationship were to hold, the most likely exchange rate against
the dollar in the event of a no-deal is $1.06—which would be the
lowest value ever recorded.
Yet even that estimate might be too optimistic. In the past fortnight,
the correlation has changed: sterling has tumbled even faster as the
probability of no-deal has risen on Betfair. That might be because Mr
Johnson, who is refusing to meet European leaders unless they agree to
scrap the Irish backstop, is risking a particularly acrimonious
version of Brexit.
If sterling were to keep following this steeper downward trajectory,
then the most likely exchange rate in the event of no-deal would be
$1.00.

Euro 1.1120
Dollar Index 97.976
Japan Yen 105.92
Swiss Franc 0.9793
Pound 1.2114
Aussie 0.6771
India Rupee 70.5433
South Korea Won 1215.83
Brazil Real 3.8881
Egypt Pound 16.5542
South Africa Rand 14.885

“With the turmoil in markets and the streets, suddenly digital gold
doesn’t seem like such a bad idea,” said Jehan Chu, managing partner
at blockchain investment and advisory firm Kenetic Capital. “Bitcoin
is increasingly seen not only as a bet on the future, but as a shelter
for the present.”

Commodities

Iron ore has gone from high-flier to sinking star in a matter of
weeks. The commodity that lit up the first half with a stunning rally
dropped back below $100 a ton as supplies pick up, mills’
profitability falls and investors dump raw materials amid the
escalating trade war.
Iron ore is “past its peak pricing after the Vale event this year sent
it into the clouds,” David Lennox, an analyst at Fat Prophets, said
from Sydney. The yuan’s drop “feeds into the concerns about economic
growth,” which are ultimately driven by uncertainty around U.S.-China
trade relations, he said.

 I follow Felicité Raminisoa and her father, Romain Randiambololona,
up a narrow track along the forested slopes of her family’s farm in
southern Madagascar. It is lychee season and, as we walk, we break off
branches of fruit and peel off the pink, spiky shells. Large yellow
jackfruit grow like Chinese lanterns among loquat and clove trees,
pepper vines and coffee plants. Sapphire dragonflies flash by as they
chase each other over ponds of tilapia dammed into the valley. The air
is muggy under the banana leaves but grows fresher as we climb. In all
directions we can see vanilla vines winding around tree trunks. Each
zigzag stem has been trained so that it grows no higher than Raminisoa
can reach. Every so often she stops at a pale-yellow bloom and parts
its waxy petals. With a spike snapped from an orange tree, she
delicately scrapes away the membrane separating the anther from the
stigma in order to pollinate the flower. This is a task that requires
perfect timing. Each flower must be pollinated by hand on the morning
it blooms or the beans won’t sprout.
The family began to plant vanilla vines about 20 years ago mostly as
“decoration”, says Randiambololona, his big grin punctuated by a
missing tooth.
At first the family sold fresh green vanilla pods to tourists,
surprised that they would pay anything for them. But in 2014 the price
of vanilla began to rise. Over the next three years it went from less
than $40 per kilogram to more than $600 per kilogram.
It felt like money was growing on their trees. In 2016 Raminisoa
travelled to the northern region of Sava, where vanilla has been grown
for generations, to learn how to cure the green pods into the
commodity that was in such demand: pungent and wizened black beans.
It can be difficult to grow vanilla in plantations, where it becomes
susceptible to disease. But the humid heights of Madagascar offer the
right climate for the plant to thrive. And the large pool of poor
smallholders on the island provides abundant workers to grow this
labour-intensive plant.
Curing vanilla pods requires precise judgment and intuition, like
winemaking. The beans, which grow in long green-fingered bunches, are
harvested individually. Green vanilla must be blanched in hot water at
a temperature of between 62°C and 64°C within a week of being picked.
Over the next three months, the vanilla is wrapped in blankets, then
massaged and spread in the sun to dry. Green vanilla is flavourless.
The enzymes that transform the glucovanillin in the plant into
vanillin – the molecule that gives vanilla its distinctive aroma –
emerge only through curing. One expert described the smell of
high-quality cured vanilla to me as a combination of prunes, leather
and Play-Doh.
When Raminisoa returned from the north she built a curing hut on the
slope behind her parents’ house. “You have to have everything
prepared,” she says. “Charcoal to heat the water, large pots, blankets
and drying racks. In the north they have a special song they sing,
about paying attention, about having patience.” Working with vanilla,
she explains, “needs discipline and passion”.
The family income rose with the price of vanilla. But this has put
their crops – and even their lives – at risk. In 2015 the whole family
congregated for a funeral. When they returned home they found that all
the trees in the lower part of their property had been stripped of
their pods. Everyone knew who the culprits were, says Raminisoa, but
the police did nothing.
Few Malagasys have much confidence in the state. A coup in 2009 scared
away foreign investors and tourists. The soaring price of vanilla has
been accompanied by an opportunistic crime wave: raiders rip out whole
vines to transplant them elsewhere and armed robbers hold up
warehouses. Estimates vary but upwards of 15% of the crop is stolen
each year.
Like vanilla farmers all over Madagascar, Raminisoa’s father and
brothers now patrol their fields at night. They band together with
neighbours and hired guards, and brandish machetes. Bush justice can
be brutal. There are stories of beatings, even decapitations. The
United Nations Commission on Human Rights says that over 150 Malagasy
died between 2016 and 2018 because of vigilantism.
Over the past two years, despite thefts, a drought in 2016 and rain
during the drying period last season, Raminisoa’s family has earned
more than $20,000 in a country where the average income is less than a
dollar a day. Previously the family scratched a bare living from
growing bananas, coffee and rice.
The vanilla boom has enabled them to buy a cow, a new electricity
dynamo and a rice-planting machine that they hope to rent out.
Raminisoa bought a house in the nearby town so her four children can
live closer to their school. She finished her education at 13; her
kids, she hopes, will go to university.
Though Madagascar now produces 80% of the world’s vanilla, the vine is
native to Mexico. The Maya were the first to cultivate it in the
jungles of the Yucatan peninsular. They flavoured their chocolate
drink with the spice. When the Spanish conquistadores arrived early in
the 16th century, they took both cacao and vanilla back to Europe. By
the end of the 18th century, Mexico was exporting a million vanilla
beans a year to Europe.
Vanilla was considered a luxury. Its delicate flavour is best
expressed in the presence of fat, which is why the creams and custards
of the elite’s pastry chefs became its natural milieu. One of its
earliest appearances was in a recipe for “vanilla ice” in a cookery
book published in Naples in the 1690s.
Thomas Jefferson fell in love with French food when he served as the
American ambassador to France in the 1780s. He transcribed many
recipes including one for “ice cream”, using egg-yolk custard simmered
with “a stick of vanilla”. When he became president in 1801, Jefferson
served these dishes in the White House – his import eventually became
a classic American desert.
But for well over a century real vanilla remained out of the reach of
most Americans. Spain controlled the Mexican trade and though a number
of people tried to grow vanilla elsewhere, the blooms failed to
produce beans because they lacked natural pollinators.
It took a young slave boy called Edmond Albius, working on a
plantation in the French colony of Réunion, to discover a method for
hand-pollinating vanilla flowers in the 1840s. His technique quickly
spread to nearby Madagascar, where French administrators encouraged
its cultivation.
Artificial vanilla was developed around the same time. Nearly 200
molecules give vanilla its subtle flavour. Artificial vanilla
synthesises just one of these – vanillin. This used to be obtained
from cheaper products such as cloves and wood (today the vast majority
of artificial vanilla is derived from petrochemical by-products).
The development of artificial vanilla went hand in hand with the
industrialisation of food production in the mid-to-late 19th century.
New manufacturers such as Fry’s, Cadbury’s and Nestlé all used it at
that time to make their chocolate silkier and more buttery.
Vanilla essence (as distinct from vanilla extract, which is the
concentration of natural vanilla pods in alcohol) found its way into
cakes and biscuits. Vanilla is now used in thousands of the food
products we find in our supermarkets. Over the years, it has come to
describe anything that is bland, unchallenging and ordinary.
Häagen-Dazs shook things up. In the 1990s the company started selling
its ice cream as a premium, indulgent treat. Their advertising
campaign was sexy and risqué – beautiful people tempering their lust
with a ball of the frozen stuff. It was a triumph of branding.
The name Häagen-Dazs was confected to suggest European sophistication
(the firm is American). The picture of a vanilla bloom on the carton
drew attention to the vanilla extract that gave the ice cream its rich
flavour. The Häagen-Dazs moment was one cause of the vanilla rush.
Another one was broader and more recent. Over the past 15 years, food
companies have faced increasing pressure from consumers to use
natural, ethically sourced ingredients. Flavour companies began to
trace beans back to their original villages and farms in order to earn
certifications of fair trade and sustainability that commanded top
prices.
In 2015 Nestlé announced that it would eliminate artificial flavouring
from its chocolates sold in America, citing consumer interest in more
natural ingredients. Other multi­nationals followed. It didn’t hurt
that the price of natural vanilla was low. Among artisanal and
mass-market producers alike, flecks of vanilla became a proxy for
quality.
Madagascar is one of the poorest countries in the world, according to
the World Bank. Near-impossible logistics reinforce its poverty. The
island is close to the size of France, and in the rainy season the
bush roads turn into impassable rivers of mud. It can take four days
to drive from Sava to Antananarivo, the capital, a distance of 550km.
The towns boast banks, public transportation, clinics and high
schools. The bush has almost no amenities.
Even within rural regions in this small nation there are clear
variations in wealth. In the Central Highlands, where the hills are
terraced into rice paddies, hand-pulled rickshaws are the main form of
transport in the towns. When I flew north, to the heart of vanilla
county, I could see new fleets of yellow motorised tuk-tuks. On the
drive, I noticed fancy new “vanilla mansions”. Several storeys high,
painted red or bright blue and mounted with balconies, these are
fenced off by concrete balustrades and garishly lit up at night in a
country where most people have no access to the electricity grid. Sava
is in the grip of a heady vanilla boom. By some estimates, over $800m
poured into the region in the 2017 season alone as foreign buyers
bought vanilla.
For many years Madagascar's government set the price of vanilla at
around $80 a kilogram. Harvests were variable and sometimes ravaged by
cyclones. A portion of the crop was stockpiled as insurance against
years when yields were low.
This forestalled shortages and prevented price fluctuations. Between
80,000 and 100,000 smallholders sold their green pods to middlemen
known as “collectors”. These, in turn, sold them to preparers, who
owned curing warehouses, or exporters (often Chinese-Malagasy families
who had been in the business for generations).
The beans were then bought by international traders or large foreign
flavour companies such as Symrise and Firmenich in Europe, and
Virginia Dare in America. These rendered the vanilla into high-quality
extract to supply the big multinationals: Nestlé, Unilever, Mars.
It was a stable if swampy system, but not all buyers felt they had
fair access to Madagascar’s vanilla. In the early 1990s, as part of a
wider privatisation policy, the World Bank insisted that vanilla
prices be allowed to float. Yet no market institutions or regulations
were put in place. In the ensuing free-for-all, the price of vanilla
plummeted to below $40 a kilogram and farmers neglected the crop.
The path from pod to pot of ice cream is a long one and could not be
hurried in the face of rising demand. Many vanilla vines grow on
forested slopes and often lie several days walk from paved road. A
newly planted vine takes three years to bear pods. Even once it does,
says Henry Todd of Virginia Dare, it can take another two years for
the fruit to reach a tub of ice cream.
Todd, a boyish American in his early 50s, is the son of a vanilla
trader who sent him to France for his education so that he could learn
the language of the flavour fluently. He has spent his working life in
Madagascar immersed in vanilla production.
“The supply chain is long and complex and a little bit opaque because
of the lack of infrastructure,” he says. For many years, collectors
acted as the hinge in the market, linking farmers with exporters, the
bush with the road. They brokered deals and financed loans.
 After the market was liberalised – but before the current boom –
exporters generally set the price of vanilla. They weighed the
expected global demand against the size and quality of a harvest. But
as demand rose, many collectors – the middle men in the system – tried
to pay low prices to growers while selling to exporters for much more.
By 2017, some exporters were paying exorbitant sums for poor quality
beans. As the price mounted, speculation and stock-piling became rife.
Several hundred collectors multiplied into thousands of middlemen
frantically buying and selling, often to each other.
Farmers played the market too, half curing their vanilla and then
preserving it in vacuum packs until the price rose again. This created
more fluctuations in the market and damaged the all-important vanillin
content of the beans.
“Every week, a different price,” shrugs one man, hanging out with a
group of small-time collectors on a side street in Antalaha, the
vanilla capital of Madagascar. “Last year was good, we had many
millions,” says his friend, who wears a medallion around his neck and
has tattoos on both shoulders.
“A lot of people bought four-by-fours, big motors. We bought
everything, even leather sofas.”
I spent almost two weeks in Sava observing the vanilla market. Every
time I thought I had worked out the relationship between supply and
demand, quality and processing, the hierarchy of middlemen and the
relative price of green and black vanilla, I found that a new factor –
currency fluctuations, corruption, cyclones – confounded me anew.
 “That’s about right,” Todd sympathises. “That’s one of the things
vanilla people love about the business: it’s never the same season
twice.” But why did the price rise so high? Though demand had risen,
it hadn’t grown tenfold in three years. And although the Enawo cyclone
blew through Sava in March 2017, it didn't destroy 90% of the vanilla
vines.
In 2018, the price fell back a little to around $400, from a peak of
over $600. Foreign buyers like Todd believe that the industry is still
in “crisis” and publically rue the deterioration of quality caused by
speculation.
But privately, Todd and almost everyone else I speak to agree that
money from the illegal rosewood trade fuelled the vanilla boom.
Rosewood is a beautiful hardwood that grows abundantly in the forests
of Madagascar’s national parks in the Sava region. It is prized for
its deep-red hue, particularly by furniture-makers in China.
Logging from national parks is illegal but has always been carried out
on a small scale. But after storms toppled many trees in 2007,
Madagascar’s president granted export licences to several traders to
buy wood felled by “acts of god”.
Some interpreted this as permission to start cutting down trees again.
The brokers of illegal rosewood sales often operated in vanilla
regions and had connections to vanilla collectors.
In 2010 the international community, concerned about deforestation,
pushed the Madagascan government to close the loophole allowing
rosewood exports. The vast sums that had been made needed an outlet.
Much of the rise in vanilla prices seems to have been fuelled by money
laundering.
Todd and executives at other large flavour companies have been
grappling with the varying quality and price fluctuations of
Madagascan vanilla for years (along with logistical challenges, such
as transporting tens of thousands of dollars in rucksacks across the
bush to pay for pods).
Virginia Dare’s main client is General Mills, which owns Häagen-Dazs,
one of the world’s largest customers of natural vanilla. No matter the
price, Häagen-Dazs’s brand identity requires its use.
In 2017 the quality of beans plummeted: so much green vanilla was
being stolen from the vine that many farmers were picking their pods
early and unripe. Even so, prices were higher than they had ever been.
Todd and other buyers realised, with increased urgency, that the only
way forward was to strengthen direct relationships with farmers and
cut out the middlemen who were manipulating the market.
Over the past four seasons, Virginia Dare has worked directly with a
farmers’ co-operative in the village of Belambo, north of Sambava, to
ensure that they have a reliable supply of vanilla. They pay farmers a
fair price and train a new generation to cure the stuff.
Belambo is 18km from the paved road, and takes an hour to reach on the
back of a dirt bike. Chickens peck at scraps; zebu, a species of
humped cattle, loll under jackfruit trees.
At a handful of “hotelys” – small eateries – you can buy a dish of
delicious zebu stew with local red rice. Yet the young men wear new
American sports gear and rev shiny dirt bikes. Some sit in the shade
chewing qat or playing music from handheld speakers.
“Three or four years ago, the bush was silent,” Todd tells me, “now
it’s full of music.” It’s also better lit than it used to be. Almost
every house has a cheap Chinese solar panel on the roof to provide
electricity.
According to Madagascar’s Central Bank, between $340m and $450m is
stashed under the new mattresses in Sava. Many farmers don’t trust the
banks, which anyway are far away and hard to reach.
Most people pay their day-to-day expenses using mobile-phone accounts.
But there is no infrastructure to handle the large number of bank
notes needed for transactions during vanilla season.
Prices in Sava are often double those in Antananarivo, the capital. At
$10, a chicken costs more in Belambo than it does in Paris.
In 2015, the first year that the vanilla price jumped, everyone
splashed out. One man apparently filled an inflatable pool with beer;
another took to sleeping on four mattresses. People treated themselves
to mobile phones, solar panels, TVs and dirt bikes.
In the second year people went for four-wheel-drive pick-ups, rebuilt
their houses with new wood, corrugated iron or even cement, which is
incredibly expensive to transport into the bush.
In the third year, they bought houses in towns so that their children
could attend better schools. Now people are beginning to think about
longer-term investments: buying land and starting small businesses,
making furniture to satisfy new demand.
Rabezaka, who is probably in his 60s and is one of the older Belambo
co-operative farmers, rolls his eyes at the excesses of some of the
villagers. He has seen it before: in 2003 the vanilla price briefly
shot up to $500 a kilogram after a cyclone hit, but soon crashed.
That year he earned enough to build and furnish a wooden house. This
time he has rebuilt his home with concrete and painted it pink, his
wife’s favourite colour.
And, he says, “it was the cheapest.” His wife, Juliette, wears an old
T-shirt on which is written “Burberry”, a gold chain with a medallion
and gold earrings.
His granddaughter, Suamarie, who looks about 11, tells me she likes
mathematics and wants to become a doctor. “And a vanilla farmer!”
calls out her grandfather.
When I ask the women how their lives have changed since the vanilla
boom, they laugh as if to say “not much”. Juliette shows me her
kitchen, a low hut adjacent to the house, and squats down to add more
wood to the fire under a big stew pot, coughing and squinting to show
me how uncomfortable and smoky the unventilated space was.
But, she says, they eat much better food now. For the first time they
can buy yogurt in the village. “The thing we don’t know is how to
prepare the vanilla to cook with,” admits Rabezaka.
I say that the best thing is to infuse it into milk or custard.
Rabezaka and his wife and daughter are unimpressed; vanilla does not
feature in Malagasy cuisine.
Rabezaka, like the rest of his generation in Belambo, rues the social
changes that prosperity has brought, even as he enjoys the new
comforts. People had once been willing to lend a hand when required,
he says. Now they expect to be paid.
Girls flock around the rich young collectors. Boys don’t want to
continue their education. All anyone wants is a piece of the vanilla
pie. And it has become less safe.
I visited the Virginia Dare warehouse, where members of the Malagasy
army were guarding $5m-worth of vanilla. Workers – mostly women – are
frisked by hand every time they leave.
An alliance of local vanilla networks, exporters and the military have
tamped down the violence. But the benefits of the boom have been
unevenly distributed.
A small tax is supposed to be levied on each vanilla transaction, but
most sellers sidestep this. Export taxes are imposed according to
volume rather than value. The Malagasy government has made little
effort to cash in.
The contrast between private wealth and impoverished public services
is striking. In Belambo people complain that there is no drinking
water, that the school building is dilapidated, the teachers barely
literate and that there is no clinic or doctor nearby.
The lack of services is so axiomatic in Madagascar that it rarely
provokes much outrage.
In recent years, some multinationals have begun to fill the void.
Symrise, a big flavour company, has set up a health-insurance scheme
for several dozen villages. Alban Bonnet, their sustainability
manager, explains that these efforts are part charity, part
capacity-building and part self-interest.
Many observers believe that a crash will occur soon – and fear that
villagers are ill prepared for it. Todd’s great hope, shared with
farmers in Belambo, is that the village co-operative will eventually
cure its own vanilla and become an exporter in its own right.
It would be much easier, says Todd, to take delivery of cured black
vanilla without the investment and complications of operating in Sava.
It’s a model that would change the relationship between Western
consumers and developing-world producers, eradicating tiers of
middlemen.
But the volatility of the vanilla market means that multinationals
could ultimately be forced to look elsewhere for supplies.
Historically market corrections have been catastrophic; most buyers
would prefer a stable and fair price – around $100 to $150 per
kilogram – to a dirt-cheap but potentially volatile one.
High prices have driven down demand by 30% from its peak, as food
companies have started to incorporate artificial vanilla again.
Some artisanal ice-cream makers no longer offer the most basic
flavour. Gilles Marchal, a Parisian pâtissière, says that many of his
colleagues have stopped using vanilla altogether. “When the price got
to €500 ($560) a kilo they just said, ‘that’s enough’.”
In December 2018, the talk in Sava was of the lateness and paucity of
the vanilla blooms. A poor harvest could send the price soaring again,
prolonging the uncertainty. But it could also be the last gasp for the
pod boom.
Indonesia, Uganda and Papua New Guinea are all planting vanilla.
American agriculture researchers are exploring ways to genetically
engineer a more labour-efficient plant.
The villagers of Belambo are enjoying the glory days while they last.
I watch as one of the new bicycle vendors arrives with an insulated
box from which he produces milk-flavoured choc-ices at 20 cents a pop.
It’s the kind of consumption – an everyday luxury – that flourishing
economies are built on. I ask 12-year-old Willis Law if he likes ice
cream. “Of course,” he says, “it’s good to have something cold when
it’s hot, and it’s rich and cold and sweet.” The kids lick and slurp,
then cheerfully drop the wrappers onto the road.•

Emerging Markets

Frontier Markets

Sub Saharan Africa

Sudan’s ruling military council signed a deal with its political
opposition outlining how they’ll share power in a three-year
transitional government, the latest step toward democracy after
President Omar al-Bashir’s overthrow.
The two sides inked the so-called constitutional declaration Sunday in
the capital, Khartoum. The African Union’s envoy to Sudan, Mohamed
el-Hassan Lebatt, said at the ceremony that a final version will be
signed Aug. 17, without describing how it will differ.
The accord, which defines the relationships between branches of the
transitional government, is the latest to be reached by Sudan’s
opposition and military rulers since officers seized control of
Africa’s third-largest country in April.
Demonstrators have pressed on with their demands for civilian rule
amid sporadic violence; a June crackdown on a Khartoum sit-in left
more than 100 people dead, while at least eight protesters including
schoolchildren were shot dead in a regional capital last week.

Zimbabwe’s finance minister responded to the country’s worsening
economic crisis last week by blacking out inflation statistics for the
next six months, boosting the price of the little power that’s
available five-fold and admitting what the International Monetary Fund
told him in April: the economy will contract for the first time since
2008.
At the same time he spoke of fiscal surpluses and and plans to abolish
a requirement for local control for projects in the key platinum
industry. This all happened in a country with daily power cuts of up
to 18 hours and shortages of everything from bread to motor fuel.
People are receiving food aid in cities for the first time and a
drought has necessitated the import of hundreds of thousands of tons
of corn.
When Robert Mugabe was ousted after four decades in power in late 2017
his replacement, Emmerson Mnangagwa, promised economic regeneration
and declared that Zimbabwe is “open for business.”
Instead things have gone from bad to worse with the effects of rapidly
expanding money supply through the sale of Treasury bills under
Mugabe’s rule coming home to roost and this year’s outlawing of the
U.S. dollar in favor of a local quasi currency that can’t be traded
outside the country causing panic.
“Zimbabwe is at a tipping point and if it falls over the edge it’s
going to be quite a long way in coming back,” said Derek Matyszak, a
Zimbabwe-based research consultant for South Africa’s Institute for
Security Studies.
“The wheels are falling off. There is no way out of a Ponzi scheme
other than a massive infusion of cash to pay off your creditors.”
The country with the world’s highest inflation rate after Venezuela
also suspended annual consumer-price data for the next six months.
The authorities need to collect comparable data since the introduction
of the new currency in February. That marked a return to 2009, when
the country abandoned the Zimbabwe dollar in favor of the U.S. dollar
and other currencies after inflation surged to an estimated 500
billion percent.
If the more commonly used black-market exchange rate is used,
Zimbabwe’s annual inflation is currently 558%, about three times the
official rate, while Venezuela’s is 35,004%, according to Steve H.
Hanke, a professor of applied economics at the Johns Hopkins
University in Baltimore.
Scrapping the official annual rate is “no real loss from an analytical
perspective,” said Jee-A van der Linde, an economist at NKC African
Economics in Paarl, South Africa. “These elevated inflation readings
did little more than create panic and damage what little confidence
was left.”
Still, the decision evokes other countries in crisis. Venezuela halted
publication of inflation data and while it periodically releases
figures, it isn’t operating on a regular schedule. In 2013, Argentina
was censured by the IMF for tampering with its data.
A de-linking of the country’s quasi-currencies from parity with the
U.S. dollar in February and the re-imposition of the Zimbabwe dollar
overnight in June has fueled depreciation with the currency officially
trading at 9.28 to the dollar on Aug. 2.
The black-market rate was 10.8, according to , a
website run by analysts. While the government has argued that in the
face of foreign-currency shortages it has no choice but to reintroduce
its own currency, Hanke disagrees.
“The Achilles heel is the introduction of the new currency to the
exclusion of the dollar,” he said. “They have decided to go in the
completely opposite direction and claimed it’s the best thing since
sliced bread and it’s going to be an absolute disaster.”
While the cost of basic services has climbed 400% this year, pay rises
have been around 10%, said Japhet Moyo, secretary-general of the
Zimbabwe Congress of Trade Unions, which has 130,000 members.
Finance Minister Mthuli Ncube tried to highlight the country’s first
positive current-account balance in a decade as a sign of progress.
Since his appointment last year, the government has sold only marginal
amounts of Treasury bills.
And earlier this year, the Cambridge University-trained economics
professor forecast that month-on-month inflation, which surged to
39.3% in June, would be close to zero by year-end.
The fundamental problem is that the government has failed to attract
significant investment and hasn’t substantially changed the policies
of the Mugabe era, said John Robertson, an independent economist in
Harare, the capital.
“People are very angry” and even though a quarter of the population
has already emigrated, more may follow, said Matyszak.
“The Zimbabwe I once loved has become a cemetery for my son’s future”
said Ashley Randen, an unemployed single mother of a 12-year-old boy
in Harare.

Kenya

That compares with last year’s average price of $2.58, and the
industry’s cost of production of around $2, EATTA said.
The last time average weekly prices dipped below $2 was in 2014, EATTA
managing director Edward Mudibo said.
At the same time, global output last year was 5.85 billion kg against
consumption of 5.61 billion kg, leaving a surplus of 240 million kg.
Economic challenges in the top three importers of Kenyan tea -
Pakistan, Egypt and Britain - had also led to a reduction in demand,
Mudibo said.