The kava industry is arguably the most important and interesting industry in Vanuatu. According to data from the 2020 National Population and Housing Census, kava industry provides income and support to 42 per cent of households in Vanuatu (26,000 households in total). As a result, about 20,000 people were employed in the formal private sector before the border was closed due to the pandemic. Kava is Vanuatu's most important cash crop – the domestic market is very strong, accounting for 57% of merchandise exports in 2019. When prices are high, it is difficult for farmers' income levels to rise – as the Asian Development Bank put it in a 2019 comparison report.
At current prices, no other crop or cattle industry is likely to catch up with Kava in terms of profitability. Kava is also a unique industry – it has great cultural and historical value for Vanuatu and the Pacific region, as well as its products themselves; it is a natural medicine that provides short, low-level, relaxing sedation with far fewer health effects or side effects than alcohol and tobacco.
Moreover, it is the only product produced almost exclusively in the Pacific – meaning that Vanuatu is the most dominant producer.
Data from participants in the global economy suggest that Vanuatu may be the world's largest exporter of kava. In addition, there is huge growth potential – almost all of Vanuatu's exports are currently going to four countries (the United States, New Caledonia, Fiji and Kiribati), leaving a large number of untapped market demand.
The industry was also growing rapidly before the border closed. Between 2011 and 2014, the average annual export volume of Kava was 766 million watts (15% of total annual exports of goods). In 2015, due to the impact of Hurricane Pam, this figure plummeted to just 1.8 million vatu.
Since then, the kava market has exploded, with an average of 2.112 billion vatu exported per year during the period 2016-2020.
This increase in kava exports is mainly due to an increase in prices, not an increase in quantity.
From 2017 to 2018, exports increased by 98%, but the number fell by 29%. The price increase is due to increased global demand (especially from the United States, where there are 200 kava bars), and after the cyclones Pam and Winston destroyed most of the world's kava production, global supply was suppressed. The quality of farmer production and exporter processing is also improving, as is the global recognition of kava, particularly in 2020, when a Codex standard was approved.
Of course, unlike most other commodity exports, Kava also has a very healthy domestic market. The best available data suggests that the value of the local market is about 70% of the pre-pandemic market. The domestic market has also seen strong growth in the second half of the past decade.
Despite the lack of data, it is clear that a large part of the benefits of this price increase are passed on to farmers, with the price per kilogram of green kava at least doubling between 2012/13 and 2019. This means that towards the end of the past decade, farmers have made significant profits, and many farmers have been able to afford a standard of living that was previously unattainable. The benefits are particularly pronounced on Pentecostal Island: in 2016, 91% of Pentecostal Island households reported planting kava, compared to 28% in the rest of the country. The results are clear, consumption grew at a very rapid rate before the island suffered the double catastrophe of border closures and The Hurricane Harold, which hit much of the island.
As a result of the price increase, kava production has increased significantly, which is supported by an effective programme for the issuance of kava cuttings in the agricultural and rural development sector. From 2016 to 2020, the number of households engaged in kava cultivation increased by 48%. Kava farms are also increasing in size, including the development of hyperscale farms with tens of thousands of kava plants. Most of the supply is not yet ripe, so it is likely that more production will be harvested with kava. More data is needed to understand the scale of kava production, but it has the potential to have a negative impact on the fairness of production markets – smallholder farmers may have increasing difficulty competing with large farms because smallholder farmers are unable to achieve larger-scale economic and supply coherence, especially in terms of quality.
While focusing on production, the sustainability of the market is also receiving more and more attention. Deforestation is an area of particular concern and the potential of the sector cannot be allowed to cause long-term damage to Vanuatu's environment, especially as the threat of a climate crisis looms and the climate crisis has already caused enormous damage. Research is urgently needed to better understand this. Similarly, the National Strategy and Development Plan Baseline Survey highlights concerns that households are overly dependent on kava and are not growing enough staple foods as a basis for traditional diets — crops that are much healthier than imported alternatives.
The increase in Vanuatu's kava supply has also been accompanied by an increase in international production of kava, as Fiji recovered from hurricane Winston and with the entry of new players, particularly the Solomon Islands, into the kava market. It is in this context that the impact period of the new crown pneumonia epidemic has entered. The epidemic has led to a reduction in domestic and global demand, thanks to recessions and lockdowns in major markets, as well as disruption to freight markets – for example, a 500% increase in air freight costs. The impact is clear, with kava export values falling by 28% from January to November 2021 compared to January-November 2019.
Data in the domestic market is once again constrained, although it is clear that once the border is closed, demand will fall – especially in Port Vila. Kava sellers at Anambre Kava Market report that it now takes a week to sell a 100-kilogram bag of kava, compared to just two days before the border closes.
The reported price per kilogram was also reduced by 40 per cent. All of this has significantly reduced the flow of money into the islands.
This combination of increased supply and falling demand means that harvesting kava is not as profitable as it used to be. During periods of high economic pressure, large quantities of harvestable kava are now left in the field, the largest source of untapped wealth.
It is necessary to repeat this before looking to the future. Unlike all other commodities, Vanuatu is a key player in the global market, so Vanuatu should seek to shape the market in a way that supports sustainable and equitable development in the country.
That means putting that principle at the heart of every decision. In this regard, sustainability means many different things. It means taking initiatives to stop or limit environmental damage. This means ensuring that communities have adequate sources of traditional food. Another part of sustainability is ensuring that Vanuatu is not overly dependent on kava – while kava may be able to drive some degree of economic development within Vanuatu, other sectors must also follow suit quickly. This is by no means an exhaustive list – for example, an important part of achieving sustainability is reducing price volatility.
One way to do this is to reduce Vanuatu's dependence on global commodity markets, in particular by increasing the level of value added in Vanuatu. Among the many related benefits, this will also increase employment opportunities, increase taxes, and elevate Vanuatu's brand. To be successful, there must be a relentless commitment to creating a good business environment and improving quality.
Another way to reduce price volatility is to increase and diversify global demand to ensure that high prices become the norm rather than a temporary bubble. If the price is high, then farmers can earn a good income by planting relatively little land – which is a huge benefit to the environment. High global prices will also contribute to the development of the wider Pacific region. Given that there is currently a small percentage of people in the world who like kava, it is absolutely possible. The recently announced lifting of Australia's ban on kava is a first step towards benignness. The rules are clear, proportionate, fair, and with a strong focus on quality.
Vanuatu's small size means it should also consider increasing and diversifying demand in an innovative and flexible way. One idea put forward by the Vanuatu Commercial Resilience Council and the Ministry of Industry is to study how to export vanuatu-made small packaged goods (under 5 kg) through Vanuatu Post to make them competitive at a price. While more work needs to be done to test its feasibility, if successful, it will allow businesses to sell directly to consumers, opening up entirely new markets while providing the same benefits to other Vanuatu-made products.
At the same time, the Pacific region must actively ensure that production takes place only within the region. If production is done on a commercial scale elsewhere, small-scale producers on small islands and remote islands will find competition extremely difficult. It would be a huge and unfair blow to the Pacific, which is already battling the injustices of the climate crisis – especially given kava's cultural heritage and the unique opportunities it offers. Vanuatu has long been a bellwether in the kava industry, with the Codex standard and the Australian trial having recently had two successes, and protecting production and growing global demand are two possible steps for future regional cooperation.
Finally, the regularization of the kava sector is essential. This will increase government revenues, help protect the environment, improve quality, improve resilience, and improve research and data collection, which are two key components of good development. Rapidly advancing technologies also mean that in the coming years, formalization will reach unprecedented levels.
Vanuatu is currently in a very uncertain period. Whether the final impact of this pandemic is still a huge unknown, and looking ahead, the climate crisis and the Fourth Industrial Revolution will be imminent, which is one of the reasons for this uncertainty. One thing is clear – Kava plays a leading role in helping to support Vanuatu's development.
Source: Vanuatu Travelogue public number
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