Vanilla market report no. 34
Objectively, when one looks at the current state of the global vanilla market and the producing countries that support it, one would think that in the minds of those who work with vanilla red flags would be popping up in quick succession. Vanilla bean production is falling in all regions. Madagascar, still the world’s dominant supplier with at least 60% market share, is beset with a variety of serious problems, all of which could grievously impact the vanilla trade. In addition the “global financial crisis” started to cast a very dark shadow on the market in the second half of 2008. The manufacturing sector is slowly realizing the vanilla business (with the exception of the food service and retail markets) remains stable and poised for growth not only locally, but even more significantly on a global level. The following is our outlook for the major producing origins:
Madagascar
A severe political crisis continues to plague the country resulting in untold economic and personal hardships. There have been security issues at the various ports resulting in widespread looting and pilferage. Many vanilla shipments have been adversely affected. The local currency has weakened considerably putting further downward pressure on vanilla prices. This is really an unfortunate tragedy for Madagascar as the already fragile economy (having made significant progress over the last 5 years) has virtually collapsed. Of particular concern is the prospect of a major famine in the southern part of the country.
Officially, the harvest in Madagascar begins in early June in the North of the Sava region but this year it has already unofficially started. This is due to the very early and profuse flowering for this crop which took place from July through November of 2008. We feel this rare premature occurrence could be a tell tale sign that the vanilla vines are stressed. It is believed that the vines, as a means of survival, flower abundantly in anticipation of weaker blossoming ahead. Usually when vanilla vines flower copiously not all are pollinated intentionally to ensure the vines are not stressed by having to support so many maturing green vanilla beans. Unfortunately, during the flowering period in 2008, the local market in Madagascar was in a very “bullish” state of mind and farmers were encouraged to over pollinate. As we all know, higher prices did not come to pass. We are quite convinced the vines were further stressed by this unwarranted pollination.
Finally, there is the ongoing story of vine disease or Fusarium posing an imminent threat to vanilla plantations in Madagascar. Vine disease is a common problem in the vanilla regions of the world and Madagascar is no different. To date we have not been able to gather any hard evidence to support the many stories we see and hear about the imminent destruction of the Madagascar vanilla crop due to vine disease. However, we do believe that the right conditions exist to see an accelerated spread of the disease. These factors include stressed and overcrowded plantations, lack of proper maintenance of vanilla vines, and shortage of the materials required for the processing of vanilla to name but a few.
There is still abundant vanilla from the 2008 crop in Madagascar; probably well over 600 mt. This was the same scenario we saw at the end of the 1990’s when the vanilla market was depressed and large carryover stocks were quite common. We are estimating this year’s crop at 1500 mt in Madagascar.
Uganda
If things are bad for the vanilla market in Madagascar they are most certainly worse in Uganda where the vanilla industry struggles to survive. With inexpensive vanilla available from Madagascar, the Ugandan vendors are in a very difficult position; they have no choice but to discount their offerings.
In 2008 Ugandan production fell to about 150 mt from over 200 mt in 2007. This tonnage was derived from two harvests, one approximately mid-year and one at the end of the year. We believe that production will fall further in 2009 to about 120 mt and may not recover before 2011. Some action has been taken to try and preserve Uganda’s share of the world vanilla market including extensive organic certification of vanilla plantations and a push to offer more fair trade vanilla.
Indonesia & Papua New Guinea
These two vanilla producing regions have in many ways melded together over the past five years so in this report we will view them as one. Indonesian vanilla dealers are heavily implicated in Papua New Guinea given the common border and considering how difficult it can be to export vanilla directly from Papua New Guinea.
Since the last vanilla crisis Indonesia has reverted to producing mostly lower grade qualities including the classic EP or early pick quality. The Indonesian vanilla farmers have deduced, quite correctly, that theirs is a unique product not available anywhere else so there is no need to discount so heavily. Black and extraction grade PNG Tahitensis type vanilla have rapidly gained acceptance in North American and European markets. Since these qualities are unique to PNG, we believe they both have long term viability in the vanilla trade. Production for both countries has fallen for the past few years and we are very doubtful that combined they will produce more than 300 mt in 2009.
Dealers in this part of the world tend to speculate heavily with vanilla and since the political crisis has evolved in Madagascar we have seen prices on the ground rise quite significantly over the past months.
India & other origins
Indian vanilla production is declining primarily due to weak demand, low prices and vine disease. Nevertheless we are confident that India will play an increasingly significant role in the world vanilla trade going forward. Although production this year will probably not exceed 200 mt, we expect this number to increase as the market recovers. India is supporting their vanilla trade with various initiatives including the possibility of changing local ingredient laws in order to encourage end users to use natural vanilla extracts as opposed to synthetic alternatives.
Boutique vanilla production from Mexico and French Polynesia has been hurt by the current market; Mexico in particular where production costs are high and vanilla plantations have been sorely damaged due to meteorological conditions. Mexican vanilla, although quite different than vanilla from Madagascar, Uganda or India, still falls into the category of Bourbon type vanilla. World prices for vanilla are depressed and production costs in Mexico can be prohibitive when compared to other origins. We estimate current production in Mexico to be no greater than 50 mt.
On the other hand, vanilla from French Polynesia – although almost ten times the current price of vanilla from Madagascar – still has a loyal following of clients mostly in the food service and fragrance industries. This can be attributed entirely to the fact that vanilla from this origin is unique both in terms of flavor and fragrance when compared to vanilla of other origins. Our estimate for production in French Polynesia is 25 – 35 mt.
Summary
We estimate that in 2009 global vanilla bean production will be 2000 mt on the low side and 2500 mt on the high side. We believe worldwide demand to be in the area of 2200 – 2500 mt, and growing steadily. It is very possible that we are already in a shortfall position as far as supply and demand are concerned. Existing inventories are acting as a buffer between market complacency and market reality. This quantity is probably significant but also very difficult to estimate; it sits in warehouses throughout North America, Europe and Asia. Some say inventories could exceed 2000 mt. – less than one year’s global usage, however, insignificant industrial buying over the past nine months leads us to believe that these inventories are already diminishing.
Production has already fallen in other vanilla producing areas and is poised to fall in Madagascar as well. The flowering of the vanilla vines in the second half of this year for the 2010 crop in Madagascar will be one of the most monitored flowerings ever and, if there should be any signs of weakness, which is highly possible, this could be the catalyst. Even if the 2010 crop is plentiful in Madagascar, we believe it will be offset by the recovering and growing demand.
Emerging markets like China and India are potentially massive for the vanilla trade. Prices for vanilla today are at levels that haven’t been seen for over forty years – production is falling and consumption is recovering or intensifying in all markets. The liquidity crisis may be easing and new markets are continually being established for vanilla. Given all of the previously mentioned factors that could negatively affect the vanilla market going forward, it would seem there is only one course of action end users of vanilla should be considering.
That would be to buy and cover as much inventory as possible as far out into the future as possible. With practically no downside risk, and everything to lose on the up side, we cannot imagine any other strategy. We are confident this period in time will one day be viewed as one of the greatest buying opportunities in the history of the vanilla trade.
ADDENDUM TO VANILLA REPORT #34 – MAY 6, 2009
It has just come to our attention that a delegation of major vanilla exporters from Madagascar is requesting an audience with the Prime Minister of the country; it appears this has been granted and will be taking place this Friday, May 8, 2009. From our understanding, the objective of the meeting is to try to convince the government to intervene in the vanilla market in order to try to control and increase pricing. The methods being proposed are as follows:
1. Fixing prices of the green beans at 25,000 FMG/kilo (approx. USD 2.50 kilo)
2. Fixing prices of bulk beans (Vrac) at 200,000 FMG/kilo (approx. USD 20.00 kilo)
3. Not permitting the exportation of vanilla below US$30.00 kilo
4. Not permitting the export of cuts or low grade beans early in the campaign.
Aust & Hachmann is against any such market manipulation or intervention. These initiatives have been tried in the past and have never been successful; however, there is a new government in Madagascar and we cannot be sure that this government will not be influenced by the vanilla exporters who are requesting this intervention.
AUST & HACHMANN (CANADA) LTD/LTEE
May 6, 2009
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