Why Our Root Beer Needs a New Label

A&W Root Beer tells us that it’s made with Aged Vanilla:

Not necessarily.

Real and Artificial Vanilla Flavor

Our story starts in Madagascar where 80 percent of the world’s vanilla is produced. Growing up tree trunks, vanilla is a labor-intensive orchid that takes three years to fruit. Since 2015, its price shot up from $50 to as much as $600 a kilogram (2.2 pounds) because of more popularity on the demand side and storms limiting supply. Then, sustaining higher prices, the government of Madagascar recently said that vanilla exports could be sold for no less than $250 per kilogram.

Next, we have Chobani, Mars, Unilever, and a long list of potential vanilla buyers. Their alternative, especially when vanilla gets too expensive, is a $50 a gallon artificial substitute. Meanwhile, pure vanilla extract can go for $100 to $200 a gallon.

At this point we can ask if we need to know whether a product has real or artificial vanilla flavor. The answers will come from decisions in more than 100 proposed class action suits. The people who support current labeling tell us that Rocky Road and Tutti-frutti are not in their namesake products. However, the real vanilla people reply that those items are names. But vanilla is an ingredient.

In a California case, Califia Farms settled while denying “deceptive marketing.” It paid consumers close to $3 million (just up to $5 apiece). Elsewhere, some cases have been rejected while others await a hearing.

Our Bottom Line: Competitive Market Structures

As economists, we can look at the vanilla flavor conflict through the lens of product differentiation. If a yogurt or soda or ice cream with real vanilla is going to cost more, its producers want people to know that it is different and indeed better than the artificial copycats.

It takes us to the four basic kinds of market structures. In monopolistically competitive markets, there are many firms that are similar and yet try to make themselves unique in some way. Through their differentiation, they can strengthen their pricing power. And, we will be able to distinguish between real and artificial vanilla:

Still though, I wonder if A&W Root Beer lovers (like my husband) will care.

My sources and more: Thanks to the WSJ What’s News daily podcast and this WSJ article for my introduction to the vanilla flavor wars. Meanwhile NPR had more about Madagascar vanilla as did Food Business News and an African commodities website. I also checked the Califia Farms settlement, here. Finally, please note that our featured image of vanilla is from NPR.