Vanilla report no. 32
This report is the result of a recently completed on-site survey of the Madagascar vanilla market during the last week of January 2008.
It is now clear that the 2007-2008 vanilla crops in Madagascar yielded a very significant quantity of vanilla. Our very best estimate confirms a crop size of at least 1600 – 1800 M.T. As expected, qualities are superior to 2006-2007 with fewer short beans and higher average vanillin contents. However, for those who purchased early in the campaign (and there were many!) higher than normal levels of degradation occurred skewering ratios for low grade beans. This resulted in higher processing costs. Preparers/Exporters that entered the market later in the campaign enjoyed lower costs and less degradation as the vanilla stabilized and curing conditions improved. In our opinion, this aggressive early purchasing was a calculated risk taken by many preparers/exporters who felt that the latter part of 2007 would bring higher prices and a general upturn in the market. To date, this scenario has only partially come to pass.
Pricing has definitely increased over last year due mostly to the weakness of the dollar and the very poor returns yielded from the 2006 crop. However, the level of the increase is not sufficient to cover the costs incurred by preparers/exporters and there is, at least for now, disparity in pricing which is more significant than usual. This has caused a rift amongst preparers/exporters with some (who purchased early) pressuring those (who bought much later) not to sell their beans below a fixed price level. The market is vulnerable to this type of collusive behavior.
It is clear that exporters and importers are currently holding about 2000 M.T. of vanilla, a combination of carry-over stock from the 2006 and the 2007 crops. Plus we believe there are still several hundred tons still being held by farmers. The early guesstimates for the 2008 crop are between 800 – 1000 T.M. The drop in production can be attributed to a number of factors including vine fatigue and some vine disease in certain areas. That being said, barring a major unforeseen event (we are in the middle of cyclone season) we feel there is a sufficient supply of Madagascar vanilla with little risk of short falls.
Prices are evolving to the upside and we feel this is totally justifiable, even desirable, given the meager returns in the vanilla market over the last three campaigns. Growers must be motivated to produce and already we are seeing falling production in Uganda, India, and PNG. In our opinion, a collapse in production would have a very negative long term impact on the industry coming so soon after the pricing crisis of 2000 – 2004.
We feel it is in the market’s interest that prices are allowed to return to more profitable levels for all parties in the vanilla trade, from the farmer to the end user. However any attempts to artificially influence the market by hoarding stocks, intimidating smaller more aggressive preparers /exporters or simply by misstating facts will only serve to eliminate consumption gains made since the pricing crisis ended.
In our opinion buyers should continue to take advantage of what are still very favorable conditions for them. Sellers have still not found their footing for 2008 and pricing variants remain in the market. We would expect prices to streamline more as the season progresses. Prices today are about 15 – 20% higher than last season and the market should easily be able to absorb this. Unfortunately given the limited size and scope of the vanilla trade the market is still vulnerable to undue influence. We feel it is critical that pricing stability is maintained especially as prices trend upwards. International buyers can ensure this by maintaining a measured stance with regard to their own requirements for Madagascar vanilla.
AUST & HACHMANN (CANADA) LTD/LTEE
February 27, 2008
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