VANILLA MARKET UPDATE – MAY 2018
As what has probably been one the most difficult vanilla crop years (2017) in memory winds down, there is reason to believe that in spite of some headwinds the vanilla market could be transitioning to a new phase of falling prices and improved qualities. Whether it is a smooth orderly decline, an erratic back and forth tug of war between buyers and vendors or an outright collapse of the market remains to be seen. Our outlook, which is by no means definitive is outlined as follows.
Madagascar – “to fall or not to fall”
We estimate that the 2017 crop in Madagascar produced somewhere in the neighborhood of 1500mt. Although the quality was improved over 2016, as the season progressed quality degraded considerably due mostly to immature beans combined with the vacuum packing of semi cured beans. Madagascar vanilla will never return to its former quality as long as the practice of vacuum packing semi cured beans is allowed. We believe there still remains several hundred mt of unsold vanilla on the ground, most of which is unstable, too humid and of poor quality. Much of this inventory is being held for speculative purposes by companies who are not regular participants in the trade and are now faced with a potentially declining market. Some of these companies are now discounting their inventories in an attempt to liquidate prior to the commencement of the 2018 green vanilla campaign which will be in full swing by the end of next month.
The 2018 crop looks to be in the same range as 2017 as far as quantity is concerned. Due to climatic conditions, flowering in the last part of 2017 was nowhere near as robust as originally expected. Currently the government is attempting to implement a series of export controls designed to discourage early picking and theft of green beans. First off, exporters and collectors are required to register any lots of vanilla they wish to export after a mid-May deadline which was from April 30th. Secondly, as was the case last season, new crop from 2018 will only be allowed to be exported after October 15th.
There are rumors that on outright ban on vanilla exports will be in effect as of June 30th , but as of yet we have not seen this officialized.
If properly executed, all of these measures could in fact protect the integrity of the 2018 vanilla crop and possibly increase production but the reality is that there has already been significant theft and early picking of green vanilla beans. Furthermore, the government has yet to demonstrate any ability to execute such legislation.
Once again vacuum packing was a huge scourge on the 2017 crop. Vast quantities of only partially cured vanilla were put under vacuum pack early in the campaign. As the crop was already somewhat immature these vanilla beans are extremely unstable when taken out of the vacuum pack. Even if the vanilla is successfully stabilized the damage done to the quality of the vanilla by vacuum packing too early is irreparable.
The green bean campaign has already begun in the northern regions and although still early initial prices are somewhat lower than the opening prices of the 2017 campaign. It is important to remember that the 2017 campaign started just a few months after cyclone Enawo struck the vanilla region. In the end the impact on the 2107 crop was small but the effect on vanilla prices was evident. Currently no such anxiety exists in the market. It remains to be seen how buyers will react as the market progresses but at this point there is a trend pointing to somewhat lower prices.
Indonesia – “too much too early”
Unfortunately, much of the Indonesian crop was picked too early, resulting in an abundance of poor quality vanilla beans with very low vanillin content. Farmers were fearful of a falling market and harvested a good part of the crop early in order to sell as quickly as possible. The market for early picked Indonesian is limited at best and we are now seeing prices starting to fall slightly in this origin as well. It is still not clear how much higher quality Indonesian vanilla will be available in 2018 and at what price levels.
Indonesia is a notoriously speculative and jittery market for vanilla and if the market is in fact softening we would expect exporters to be very aggressive with their prices. We do not see much expansion regarding production and we expect a crop size between 100 – 150mt for “real” Indonesian Vanilla. We say real because until recently many Indonesian exporters were also offering PNG vanilla which was smuggled through the border in a semi cured state and finished in Indonesia. Quality issues were rampant as most Indonesian exporters were unable to stabilize the PNG vanilla. For the time being the government in PNG has clamped down on cross border smuggling which we believe will benefit both origins in the long run.
Papua New Guinea – “we’re number 2”
PNG vanilla production has expanded impressively throughout the most recent vanilla crisis and the government finally seems to realize the value the crop brings to the economy. Hence the crack down on smuggling to Indonesia as previously referenced. There is strong demand for PNG gourmet vanilla and inroads are being made in the extraction market as well, albeit on a much smaller scale than bourbon vanilla. Although PNG does produce some Planifolia type vanilla we feel the Tahitensis product has much greater potential as the flavor and fragrance profile is completely unique to this origin. Although the Planifolia vanilla can be visually impressive it is usually very weak on flavor and fragrance and not properly cured. PNG vanilla is enjoying a dominant position in the increasingly important food service and retail sectors for vanilla which is no surprise considering a price difference of between 150.00 – 200.00/kg USD FOB when compared to gourmet vanilla from Madagascar.
Like other growing regions, early picking and immature vanilla have caused their share of poor quality. However, local farmers and exporters have become increasingly aware of this and we are seeing some improvement on the ground in this regard. Currently there is significant tonnage of PNG vanilla coming to the market and we predict 2018 could see up to 250mt of cured vanilla beans produced. This would place PNG as the second largest producer of vanilla after Madagascar on a global basis.
Uganda – “stabilizing the market”
Ugandan vanilla has underperformed miserably throughout the crisis but in 2018 there is hope after the government stepped in with measures to try and reform the industry. Extremely poor-quality vanilla and impotent production has left Uganda lagging behind its competitors. Now with measures in place to prevent early picking and minimize theft we are hopeful that the upcoming crops (May and November) show improvement over 2017. This is still “work in progress” and it would be unrealistic in our opinion to expect the combined production from both crops to exceed 75mt – 100mt.
Comores - “crème de la crème”
Although production still does not exceed 100mt, the islands of The Comoros are currently producing the best quality bourbon vanilla. A comparatively small growing area and strict government controls allow for a relatively mature harvest with minimal theft and disruption. There is an aggressive campaign underway to increase vanilla production with a goal of doubling tonnage by 2020. We are also expecting somewhat lower prices in The Comoros as well.
French Polynesia – “opportunity lost”
There is no doubt that authentic Tahitian Vanilla is one of the highest quality and most sought after vanillas most often used in the foodservice and fragrance sectors. Incredibly, despite extremely favorable market conditions the production of French Polynesian Vanilla has fallen and prices have risen to levels that can only be described as utterly unsustainable. Unfortunately, the export market is controlled by just a few exporters who amongst themselves set whatever price they deem appropriate focusing on profit margins instead of increasing production and market share. Unless this pattern changes vanilla from French Polynesia will never rise above its “niche” status. 2018 production will unlikely exceed 25mt.
Social Issues – “dangers lurking”
The current state of the vanilla market causes untold problems in Madagascar and other growing regions. Armed robberies, vigilante justice in the countryside where thieves are killed on the spot when caught stealing vanilla, political cronyism, etc. When a kilo of vanilla sells for what is the equivalent of the average yearly wage for the typical Malgache worker it is not hard to see how temptation arises and how unsavory elements are attracted to the trade. Vanilla farmers and their families are forced to take extreme measures in order to protect their vanilla harvests. If and when prices return to more manageable levels we would expect a sharp decrease in these very unfortunate occurrences.
Conclusion – “is this really the end”?
To be very clear we are by no means predicting the end of high vanilla prices. Even if vanilla prices fell by half, which is extremely unlikely in the short term, they would still be at historically high levels. We do believe that the market has plateaued as vanilla production has sufficiently supplied global demand which has been falling for several years now. This is evidenced by the relatively large quantity of unsold, mostly poor-quality vanilla still on the ground in Madagascar. In our opinion several things still have to transpire in order for the trend of lower prices to gain momentum.
- The government must be at least moderately successful in their efforts to control the early picking and harvest of the 2018 crop in Madagascar.
- International buyers, including this company, must not pre-finance purchases excessively as this contributes to quality and price issues.
- The quick curing and green extraction of vanilla must be tightly regulated in order not to put undue pricing pressure on green vanilla beans and negatively impact the lively hoods of thousands of Madagascar vanilla workers.
- The vacuum packing of vanilla must be banned outright prior to Jan 1st 2019 in order to force farmers and collectors to properly cure and dry their vanilla. After early picking, vacuum packing semi cured vanilla has the most negative impact on the quality and yield of any given vanilla harvest. Banning vacuum packing would require a concentrated and expansive effort by local authorities that we have yet to see in Madagascar,
- With presidential elections scheduled this year the country must remain relatively stable.
Even then an immediate downturn is by no means a certainty, if exports are banned outright at the end of June this could create a short- term squeeze for buyers who have not covered their needs through until the 4th quarter of 2018 when the exporting of the 2018 crop will commence. An overly cautious approach may result in missed opportunities.
FEMA – Flavor and Extractors Manufacturers Association
After years of dithering and delays FEMA has finally published a paper on the FDA regulations regarding the labelling of Vanilla Flavorings and Vanilla Flavored Foods in the U.S. in the most recent edition of the trade magazine Perfumer and Flavorist. We have attached a copy of said paper and although somewhat long it makes for very interesting reading if your company is manufacturing vanilla flavored products. We have highlighted what we find to be the most salient points. This article will also be posted on our web site at www.austhachcanada.com
Aust & Hachmann (Canada) Ltd
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