Vanilla Market Report no. 45
If only one word could be used to describe the most dominating aspect of the global vanilla trade in 2014 it would have to be the word “quality”! Simply insert any of the following words in front of quality and the picture is complete: Poor, substandard, horrible, terrible, hideous, unacceptable, etc. etc. Even during the most difficult vanilla crisis from 2001 – 2004, the market was not forced to collectively deal with the absolutely awful quality that was available over the past year. Never have we seen, at least not in the past 25 years, such badly cured, overly humid or overly dry, vanillin deficient, rancid and or phenolic smelling immature vanilla as we have seen coming from the 2013 crop delivered over 2014. Of course we are referring to Madagascar vanilla and these days where Madagascar vanilla goes so does the international vanilla market. The expected recovery of vanilla production from formerly important vanilla growing regions such as Uganda, Indonesia and India has simply not materialized. Buyers have no choice but to deal with the mess that was Madagascar vanilla in 2014. Given the lack of quality emanating from the world’s only major vanilla growing region and the lack of alternative sources for buyers we believe the global market for vanilla beans is dangerously exposed on several fronts.
This report will refrain from any opinion on the other growing regions such as Uganda, Indonesia and India. Simply put, nothing has changed since our report of April earlier this year. We do not believe any of these regions will produce over 100mt in 2014 and even combined these crops will not have a significant impact on the world wide vanilla trade in next 6-12 months. Although India shows signs of recovery and renewed interest in vanilla, we believe prices have to stay at current levels or even move higher before a greater commitment to restarting vanilla plantations sets in.
In the meantime, global vanilla buyers, be they industrial, food service or retail, are heavily dependent on Madagascar production. This cannot be construed as a healthy market. In fact, in our opinion, it is the exact opposite.
We can confirm that the 2014 vanilla crop in Madagascar will be much improved over 2013 both in terms of quality and production. Unlike 2013 when the vanilla was picked in an immature state, 2014 is a very mature crop and will contain a very high percentage of split vanilla beans, possibly 65%. Although it is still early to make such projections the crop size should be at least 1800mt and could go as high as 2400mt. Given the fact that there are still several hundred tonnes of unsold material from 2013 on the market a dilution of quality can be expected. Nevertheless, a return to normal vanillin contents and flavor profiles should be the norm for 2014.
Earlier this year when the first green vanilla beans came to the market in the North of Madagascar prices were somewhat softer than at the end of the previous season. There are many reasons which could have explained this. Most exporters were still heavily pre-occupied with trying to stabilize and liquidate their holdings from 2013. As a result only a few players were present in the early part of the 2014 campaign. The quality of the vanilla in 2013 made it particularly difficult and time consuming to cure. For some this created the impression that prices may actually end up lower this season than last. Any such illusions have recently evaporated in view of events that have transpired on the ground over the past few months in the Sava region of Madagascar.
As one vanilla crop comes to the market, the flowering for the upcoming crop, in this case 2015, commences. At this time of the year this is the single most important event that influences pricing and buying patterns. The flowering for the upcoming season (2015) usually commences in September and continues for 4 -5 months in two, sometimes three phases.
To date the flowering for the 2015 vanilla crop has been very poor, perhaps as little as 30% of what normally should be expected. This is quite normal following a season of abundant crop. Even if the flowering were to recover in November and December, we are almost certainly facing a 2015 vanilla crop of a lesser quality as the additional time required for green vanilla maturation will certainly not be respected on the ground. It never is. It is still far too early to accurately project the size of the 2015 crop.
Given that in 2013 Madagascar only produced about 1500mt, and the generally accepted figure for global vanilla consumption is still about 2000mt, the market should already be in a deficit position. However as many industrial users are aware there have been very substantial speculative inventories of vanilla being supplied from stocks in Europe and the U.S. Much of this vanilla was already over 5 years old when the recovery in vanilla prices started in 2012. Speculators had no choice but to begin liquidating. These inventories which are now mostly depleted provided important support within the market over the past 2-3 years.
For the past few months dozens of major foreign buyers (mostly industrial) have passed through the Sava in order to try and assess the upcoming crop. This on its own would excite the market but the very weak flowering has further emboldened vendors who are now starting to hold back vanilla waiting for better prices. We have all seen this pattern before. Some exporters in Madagascar will try to entice buyers to finance their purchases in advance by offering unrealistically low prices. This is a very dangerous game to play and in the long run benefits only the vendor. Industrial buyers should exercise extreme caution and prudence when soliciting offers. This is a substantial crop and there will be plenty of vanilla available. The only real question is where prices will go.
Today flavor manufacturers have many choices when it comes to natural vanilla and are not bound to using flavors originating only from vanilla beans. Some vanilla exporters and dealers seem blithely unaware of this fact.
If the prices for Madagascar vanilla increase without proper justification end users will simply adjust their formulations. Given the fact that FDA regulations governing labelling and ingredient declarations are not strictly enforced such changes come with little risk attached. Recently there was a concerted effort made by several members of FEMA (Flavor and Extract Manufacturers Association) to try and have a document outlining the above referenced FDA regulations published in a major trade publication. After 4 years these efforts have proven futile despite several promises made by FEMA assuring imminent publication. Ironically this lack of action may actually benefit members while penalizing vanilla farmers should Madagascar vanilla exporters and collectors attempt to control and manipulate the global industrial vanilla trade. Major buyers of vanilla are becoming increasingly frustrated by this tendency on the ground each time there is tightness in the market. Flavor companies who have the resources will try and take greater control over the process in Madagascar, imposing their own ideas on how vanilla should be grown and processed. Furthermore, given that Madagascar practically has a monopoly on the global vanilla trade it is not hard to imagine other companies lobbying the FDA for a broader interpretation of the vanilla standards in order to counter the market dominance of this very critical component in the flavor industry.
Buyers and end users of vanilla are still looking for ways they can convince their clients that they and their vanilla suppliers are engaged in sustainable practices on the ground in Madagascar.
Demand for certified organic vanilla remains strong and to a lesser extent certified fair trade vanilla.
What type of tangible net benefits the latter provides to the vanilla communities of the Sava is debatable especially in view of the fact that current prices for vanilla to the farmer have almost tripled in the last 3 years and now exceed what was recently considered as a minimum “sustainable ‘price.
We believe that direct one way support of small community oriented projects, such as those provided by the MDF (Madagascar Development Fund – www.maddevfund.co.uk ) focusing on education, healthcare, clean water and infrastructure have a much more immediate and beneficial impact on the vanilla communities of the Sava region. Furthermore the actual supplying of vanilla is not a pre-requisite to having the project successfully implemented. Sponsorships of such a projects can be used as very effective media and marketing tools for promoting sustainable practices.
In conclusion we do not believe there is any reason to become overly concerned about the state of the current vanilla market. Improved quality is a huge positive and will re-instill confidence in the Madagascar brand. The crop size will help to mitigate any potential for a real shortage. Better quality means improved yields at the industrial level. This gives buyers flexibility and will allow more utilisation of lower grade beans such as the carryover for the 2013 crop which is several hundred tonnes. As we have pointed out many times in the past prices are still well below historical averages for the past 40 years. 2012 and 2013 were very tough years for exporters and buyers of vanilla alike for reasons mostly related to poor quality. It was expected that a greatly improved 2014 crop would generate interest right across the vanilla spectrum. Dire predictions for the 2015 Madagascar vanilla crop are alarmist and very premature in our opinion. Vanilla buyers should not get allow themselves to get caught up in the hype. We simply do not see the justification at this point in time.
Aust & Hachmann (Canada) Ltd
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