VANILLA MARKET UPDATE – MAY 2024
Since our last vanilla report in May of 2023 the international market has stabilized after a year of falling prices that began in Madagascar and subsequently spread to other growing regions. The market reversal was long expected but was delayed first by COVID and then by Madagascar’s fixed pricing policy. The latter eventually collapsed due to the unsustainable gap between the government imposed fixed price and the actual vanilla price on the ground. Today vanilla prices are again at historic lows, though not as severe as the last collapse experienced in 2004. Madagascar remains the unchallenged dominant global supplier of vanilla beans. How things progress in Madagascar in 2024 and beyond will determine the direction of the global vanilla market. In this report we will attempt to ascertain where this may lead vanilla buyers of the world both in terms of price, supply, and quality.
ALTERNATIVE VANILLA GROWING REGIONS
Uganda
When the government of Madagascar imposed a fixed price policy of USD$ 350.00/kg, subsequently reduced to USD$ 250.00/kg, it created chaos throughout the vanilla world. These prices were well above the actual vanilla prices on the ground in all major vanilla growing regions. At the time we believed this would present a tremendous opportunity for Ugandan vanilla, where the market remained free and transparent. Many flavor companies, unhappy with the fixed pricing policy, pledged to incorporate more Ugandan vanilla into their vanilla flavoring production. Production and quality were on an upswing in Uganda so the timing was perfect. Unfortunately, when the fixed price policy in Madagascar collapsed, and prices with it, buyers for the most part quickly abandoned Ugandan vanilla and returned to Madagascar. This has left Uganda with an over supply of very high- quality vanilla. Prices have recently fallen below those of Madagascar, and we expect vanilla production of 300-400mt from Uganda in 2024 from both crops combined. How long vanilla prices remain low will determine how long Ugandan farmers maintain their plantations. For the near term we do expect ample supplies of vanilla from Uganda. If industrial buyers continue to resist the incorporation of more Ugandan vanilla into their production, they will inadvertently aid Madagascar in solidifying its world dominance in the trade.
Indonesia/Papua New Guinea
In 2023, Indonesia experienced good flowering across most vanilla regions due to a prolonged period without rain. Logically this should result in a significantly improved harvest in 2024 but due to insufficient rainfall during pollination the overall size remains relatively small. The total crop estimates for 2023, was 125 – 175mt, which was below our initial projections. However, 2024 looks much improved with estimates for vanilla production as high as 300mt. This does not include the Tahitensis variety from Papua New Guinea. It seems the supply of Tahitian-type vanilla from PNG is declining in terms of both volume and quality, however, we still believe that over 50% of the vanilla crop in PNG is exported to Indonesia. Prices from both regions have not come down as much as Madagascar since exporters, recognizing the unique flavor and fragrance profile of their vanilla, prefer to wait than sell their vanilla at levels deemed unsustainable. Buyers are continuing to acquire Indonesian and PNG vanilla in anticipation of higher prices as Madagascar inventories diminish. Crop sizes from both origins are expected to remain stable.
MADAGASCAR
The collapse of the fixed pricing policy in the first half of 2023 led to the long anticipated, downward spiral of vanilla prices which continued throughout the rest of the year. With the expectations of much lower pricing and improved qualities for the upcoming 2023 crop, buyers remained on the sidelines for much of the year and only covered their short-term vanilla requirements. There was greater urgency to liquidate older expensive vanilla inventories. By the end of the vanilla campaign in 2023 there was still significant inventory of unsold vanilla beans from the 2022 crop. Estimates of carry over stock exceeded 1000mt. As the year-end approached and with the election campaign in Madagascar well underway there were no clear indications on when the 2023/24 campaign would begin, who would be granted export licenses and what the minimum export price would be. The government was more focused on the elections which were concluded with little social unrest as some had predicted. In the meantime, the green vanilla campaign was well underway with few constraints. Prices for green vanilla fluctuated between USD$ 1.50 – 3.00/kg while attempts to establish a minimum price for green vanilla were largely ineffective. Upon completion of the elections, the government finally issued export licenses for vanilla and January 10th was established as the opening day for exports.
The USD$ 4.00/kg export tax was maintained despite the large drop in vanilla prices. The season started slowly.
Exporters were not certain if customs agents were going to accept the USD$ 40.00/kg minimum price prompting some to declare higher prices just to ensure their shipments not get stopped. It was eventually established that exports would be allowed at a minimum declared price of USD$ 40.00/kg. This does not mean that exporters had to sell at this price, rather that they needed to repatriate the equivalent of USD$ 40.00/kg for each kg of vanilla exported. As seen in previous years with an official export price, there are many ways to manage the local repatriation of funds to comply with local regulations. The significant difference this season is that the government used a minimum price reference more in line with actual prices on the ground making it somewhat easier and less costly to manage. Despite prices having fallen by more than 50% since last season the government maintained the USD$ 4.00/kg export tax which now has a more pronounced impact given the current average price of conventional industrial vanilla is below USD$ 50.00/kg FOB.
Despite the late and subsequently slow start of the 2023/24 Madagascar campaign, vanilla exports rapidly accelerated through the first three months of 2024. In fact, we believe Madagascar should have no difficulty achieving an export volume well over 2000mt of vanilla before the season closes at the end of July. The USD$ 4.00/kg export tax could generate over USD$ 10,000,000.00 in additional revenues (about 44 billion Ariary). According to the CNV (Conseil National de la Vanille) funds collected form the 4.00/kg export tax will be used to improve conditions and quality within the vanilla sector. Currently there is an urgent need to repair some of the bridges damaged during the recent passing of Cyclone Gamane. The damaged bridges have severed several critical routes connecting the vanilla region to Tamatave and Antananarivo, making vanilla circulation very challenging during one of the busiest times of the season. Since the cyclone, all vanilla from the Sava area must pass through the port of Antalaha, which is extremely risky and adds approx. USD$ 1.50 -2.00/kg in shipping costs. It has been over one month since the cyclone and to the best of our knowledge the bridges have not been fully repaired. A small fraction of the funds collected through the USD$ 4.00/kg export tax could easily be allocated to repair all bridges in the vanilla region. Additionally, these funds could be used in many ways to assist the vanilla communities of the Sava.
Increasing awareness on insecticide usage and methods to avoid contaminating vanilla, discouraging the vacuum packing of any vanilla that is not fully cured and ensuring green vanilla is only picked at maximum maturity are just a few examples of initiatives we believe would be beneficial for the industry.
Hopefully, the vanilla exporters of Madagascar will press to ensure that the funds collected through the USD$ 4.00/kg export tax are used for the benefit of the vanilla industry with full transparency.
As expected, quality and overall yield for the 2023 crop were much improved over 2022. However, we believe the quality could have been far better if the practice of vacuum packing partially cured vanilla had been eliminated. The idea of vacuum packing partially cured vanilla originated during the years of very rapidly rising prices with the goal of preserving moisture, maximizing profit, and minimizing costs when selling. The responsibility of finishing vanilla curing fell on the exporters. Unfortunately, the practice is still widespread today, especially early in the campaign, and it seriously diminishes overall quality. We would like to see vacuum packing completely disallowed during the harvesting and curing campaigns and only be permitted once the vanilla is fully cured and stable. We believe this would involve imposing a minimum date each season when vanilla would be allowed to circulate vacuum packed, ensuring the vanilla is fully cured and stable. One the of the main reasons Madagascar dominates the world- wide vanilla trade is consistency in quality and profile over large volumes and regions throughout the country. In our opinion Madagascar should regulate the practice of vacuum packing in order to maintain the highest possible standards of quality.
Although it is generally accepted that 2023 was a bumper crop in terms of size the actual number is very difficult to estimate with a high degree of accuracy. In our opinion that number is probably between 2500 – 3000mt. Thus far in 2024 Madagascar has exported well over 1500mt of vanilla beans and with the season closing on July 31st there is ample time to surpass 2000mt. As mentioned earlier, cyclone Gamane caused much damage in the Sava region, mostly due to excessive rain rather than wind. It is still not clear to what extent this will affect the 2024 crop but it is important to remember that 2024 was already expected to yield far less than 2023 which is typical for vanilla vines, following a bumper crop. What is clear is that the cyclone did not cause catastrophic damage to the 2024 vanilla crop as some exporters had suggested. Quality for 2024 is still very much a question mark as the vast majority of flowering was late, occurring early in 2024.
CONCLUSION
We are now in the second year of what could be described as a “bear” market for vanilla, with prices seeming to have bottomed out for the time being. Thankfully we did not reach the lows of 2005 – 2007 when top quality Madagascar grade 1 extraction beans were selling below USD$ 20.00/kg FOB. Nevertheless, today’s prices are still well below sustainable levels. Although there has been an uptick in prices since the start of the campaign this is by no means a stable trend towards higher prices just yet. This season we are seeing speculation at all levels of the trade, from farmers, collectors, exporters, buyers and even end users. Nothing on the scale of the last period of extremely low prices from 2004 – 2010, but that degree of speculation could still manifest if prices do not recover further and faster. There is no way of knowing how much vanilla is currently being held purely for speculative purposes. We believe the quantity is quite significant and in the short term this should act as a buffer against extreme price increases. As prices rise, additional vanilla will be released to the market.
The biggest wild card, which is very difficult to predict, is what government policy will be towards vanilla in the 2024 season. One of our concerns is a possible increase of the USD$ 4.00/kg export tax. Given very healthy export numbers for vanilla this year and, like all governments, that of Madagascar is always looking for more sources of revenue, it would not surprise us to see this this tax go up. We also expect the government to be very strict with exporters whose repatriation accounts are not up to date. Over the past few years there have been constant rumors of a drastic cut in the amount of export licenses issued, but thus far, this has not transpired.
Uganda, Indonesia and PNG are all expecting reasonably healthy vanilla crops in 2024. Unless the 2024 Madagascar crop comes in well below 1000mt we do not see any shortfall in vanilla bean supply over the short term. Quality from all major growing regions is generally good and should continue to improve. We do not see any threat to Madagascar’s dominance in the global vanilla trade. If anything, with very low prices and buyers unable to give up their dependance, Madagascar will further entrench itself as the uncontested leader in the world wide vanilla market.
Aust & Hachmann (Canada) Ltd
The market reports that we issue are based strictly on our opinions and observations. We believe we have presented a reasonably accurate portrayal of the global vanilla market in very general terms. The reports date back almost 20 years and are all available on our web site:
https://www.austhachcanada.com/reports/
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