The vanilla market has always been a complex one. Vanilla prices tend to be very volatile due to the alternation of product abundancy and scarcity (the product is very sensitive to weather conditions). In the periods of abundancy farmers have to sell the product at very low unitary price/kg and this force them, in some cases, to abandon their plantations. This in turn causes price increases due to lack of supply. High prices slow the demand causing a reduction in consumption. In 2000, vanilla prices were so low that certain countries became disinterested in vanilla production.

Nevertheless, the production kept growing over the years, thanks also to the emergence of new consumer markets (especially in China) which placed an additional strain on the market. Between 1961 and 2016 world production rose from 1 300 tonnes to over 8 000 tonnes.

In Tonga, one major company (from now on: Company 1) has been present in the country for more than ten years. The company runs its own farm, producing 5 tonnes/year, but buys some beans also from other farmers. It produces a diversified line of beans, extracts, syrups, paste and sugar, among others.

In 2013, another company entered the market (from now on: Company 2). According to Company 2, the Tongan Government had encouraged them to enter the market to revive the vanilla industry, in view of the abandoned growing areas that resulted from past market downturns.

Company 2 offered contracts for vanilla growing to 257 farmers (270 in 2016), paying them T$3 (about US$1.3) upfront per plant, and dispensing a total of US$364 000. It also provided additional payments during the long production cycle (i.e. trimming, pollination, harvest), to give farmers some income during that period. In addition, it provided technical assistance and certification (organic and Fairtrade in 2016). The contract fixed the price for five years at T$13/kg. This operation attracted many farmers, the majority of whom were not in the vanilla production previously, reviving 95 percent of the then almost dormant Tongan vanilla industry.

At this point, Company 1 started offering to buy beans at a much higher price (T$25/kg) than that proposed by Company 2. Company 2 went to the national radio saying that they would have taken to court any farmer who signed a contract with them and would have sold vanilla beans to Company 1. The Government, on its own, admonished Company 1 for paying farmers too much and threatened it with legal actions. Company 1, in turn, argued it had the right to buy the beans from whoever wanted to sell to them.

For other information, please see in the Annex the contract used by Company 2 to engage in contract farming with vanilla growers.