August 2017

VANILLA MARKET UPDATE – AUGUST 2017

Although we are still several months away from a more comprehensive global vanilla assessment, we felt it necessary to update the situation on the ground in Madagascar as it is evolving somewhat differently than we had suggested in our report of May 2017.  Madagascar will have an even more dominant position on the global vanilla stage in 2017 as compared to 2016 as virtually all speculative and carry over inventories of vanilla beans have been mostly liquidated.  The expected increase in vanilla production from other origins has not yet materialized and it is unlikely we will see a significant impact before 2018. Therefore what transpires in Madagascar this season will determine the trajectory of the global vanilla trade which we will analyze in greater detail later in the year.

In the meantime the Madagascar harvest has been well under way for over almost two months and there have been several unexpected developments so far. Here are the key take-away points that we have identified.

  • Cyclone Enawo did not have the disastrous impact that many had predicted. Although there is a significant quantity of very immature cyclone vanilla (these are green beans that were blown of the vines 3-4 months before full maturity and immediately cured) the overall quantity is probably less than 20% of the total crop.
  • We had suggested in our previous report that 2017 could produce one of the worst quality vanilla crops ever.However, against all expectations, even those of the most seasoned vanilla exporters in Madagascar, rural communities were in fact able to control the theft of green vanilla to a large extent.  As we write this report there is still an ongoing green vanilla campaign whereas last year at this time most green vanilla had been harvested. This suggests a more mature crop in 2017, which in theory should translate into better quality and better yields, particularly in the regions of Ambanja, Maroantsetra and Mananra. Qualities in the Antalaha and Sambava will be more difficult to contend with.
  • A big factor in helping to control the theft of green vanilla, in our opinion, is the drop in demand for “quick cured” vanilla this year over last. This has meant far less financing in advance of the green market and less pressure on green vanilla prices. This is welcome news for those who truly believe in the sustainable purchasing of vanilla beans. It seems the local government is coming to realize how detrimental this practice is towards the communities in Madagascar who rely on vanilla for their livelihoods.
  • There is a possibility of a government decree which would not allow any vanilla exports from Madagascar before October 15th however to date we have not seen anything official. We see such an action as being far more detrimental than beneficial to the local vanilla market given the current global supply situation.
  • Pricing has been stable since the start of the campaign, should f it remains that way we can expect pricing in the same range as witnessed just prior to the cyclone. However we caution that it is still very early in the campaign and vanilla pricing is by no means established.
  • Unfortunately some large collectors have already started to vacuum pack partially cured vanilla beans in the hopes of a higher price later in the season. Unless the local government gets involved we do not see this practice being curtailed in the short term. In our opinion only a surplus production in vanilla will put an end, at least temporarily, to this practice which serves only to severely diminish vanilla quality and yields.
  • Our preliminary estimate for crop size for the 2016 Madagascar crop is between

1300 – 1500mt including the cyclone vanilla. Barring any government intervention, the lower quality beans will export by September, high grade extraction by late October early November. Good quality Black vanilla no earlier than December/January 2018.

This is still a very preliminary crop assessment for 2017. As anybody who has dealt with Madagascar for any length of time knows, much can still happen. We will attempt to issue a more detailed report prior to the end of the 4th quarter.

Thank you.

Aust & Hachmann (Canada) Ltd