Vanilla Market report no. 38
Despite signs of recovery in certain sectors, the overall global market for vanilla beans remains stubbornly weak. As previously indicated, declining production in areas outside of Madagascar are starting to have an impact on availability, in particular with regard to gourmet or prime quality vanilla beans. However, large carry over inventory positions for industrial grade vanilla beans combined with a lack of clarity with regard to US labeling laws continues to drag on the industrial sector. As always we will start our analysis with Madagascar who is still more than ever the world’s largest producer of vanilla beans.
Madagascar
In 2010 Madagascar was responsible for 72% of all vanilla beans imported into the U.S. and probably well over 85% in Europe and 95% in Japan. The continued low prices of the past four years has helped Madagascar reconsolidate its grip on the market and they remains the world’s dominant supplier of vanilla beans. In our estimation the 2010 crop produced between 1200 – 1400mt of vanilla. Since early 2011 approximately 700mt of vanilla beans have been exported from Madagascar.
In our estimation approx. 1000mt remain in the warehouses of various exporters throughout the Sava region. It is important to remember that there was significant carry over inventory from the 2009 crop which will inflate the export figures for 2011. We anticipate a much smaller carry over from the 2010 crop.
The quality from the 2010 crop is inferior to 2009 which is in line with expectations. We have conducted extensive vanillin testing and results suggest decreases of 10 – 20% on average. As we pointed out in previous reports, the 2010 crop flowered very late and as a result was somewhat immature with many regions picking far too early. Vanillin content is maximized only in the last weeks of green vanilla maturation. Even though cured vanilla from 2010 may appear normal with respect to size and aroma profile vanillin contents are still lacking. Looking ahead to 2011 we expect a slightly larger crop than 2010, albeit with a higher percentage of shorter beans due mainly to excessive flower pollination early in the campaign. The exact opposite of what happened in the previous crop. It is still too early to predict the quality for the 2011 crop however early indications are for improved quality. Finally, we believe that current market conditions favor the possibility of real supply problems for gourmet or black vanilla in the next 6-12 months as there is little support inventory for this quality.
Uganda
Just over 150mt of Ugandan vanilla was imported into the US market in 2010. Like Madagascar there was significant carry over inventory to deal with. In 2011 we expect that Uganda will have a difficult time producing even 150mt of vanilla beans. Carry over inventory will inflate figures somewhat; however again – as is the case in Madagascar – these inventories are diminishing.
The Ugandan market has also come under the influence of a Danish organization called DANIDA or The Danish international Development Agency who have been supporting a subsidy program for Ugandan vanilla. Despite the underlying good intentions this is not necessarily having the desired effect as it gives some exporters a big advantage when buying green vanilla from farmers. Subsidized buyers are paying a higher than normal market price thus forcing non-subsidized exporters out. It is not clear how long the subsidy will last but for the time being the Ugandan market is in turmoil. One exporter is dominating the market, qualities are diminishing and farmers are under the incorrect assumption that the market is recovering. Supporting this argument is the fact that current Ugandan prices for vanilla on the ground are higher than Madagascar’s. The actual average declared price on US imports from 2010 was higher on a per kilo basis for Ugandan vanilla than it was for Madagascar vanilla. Historically Madagascar vanilla has always commanded a premium price over Ugandan vanilla.
Indonesia and Papua New Guinea
Unfortunately the story changes little for these two regions in 2011. Papua New Guinea vanilla production is practically non-existent with sparse quantities of very poor quality extraction grade beans available. Those who chose to speculate with PNG vanilla are now forced to dump inventories which have begun to deteriorate. We do not expect more than 50mt of vanilla from this region in 2011. In 2010 just over 200mt of vanilla from Indonesia was imported into the U.S. This figure is somewhat surprising given that most people, including ourselves, predicted a total production of less than 200mt for this region. There is however a plausible explanation. Indonesia is one of the most speculative regions when it comes to vanilla. We are aware of some exporters who have been waiting in excess of 4 years for the market to recover so that they can sell their holdings. For the most part these positions have failed and now, as in PNG, many exporters are now liquidating their positions. We believe actual production in 2011 will not exceed 150mt for Indonesia with the vast majority of vanilla being classified as low grade beans.
Mexico and French Polynesia
The two boutique markets of the vanilla world continue to survive thanks mostly to very loyal followings within the food service and restaurant industry.
However industrial demand does still exist, albeit on a very small scale, for both origins. These two factors have allowed these origins to survive despite the severe adversities faced by the industry. That being said production has still been crimped as not all end users are prepared to pay the vast premiums commanded for vanilla from Mexico or Tahiti. In the case of Mexico we estimate production in the 30 – 40mt range for 2011 while Tahitian vanilla production will probably not exceed 25mt.
Conclusion
The vanilla market, driven by the weak demand for industrial grade vanilla beans remains mired in a slump. The consequences of this unnaturally extended period of weakness are now starting to become apparent in the market place. Outside of Madagascar vanilla production and quality are falling rapidly. The upper end of the market is again completely dominated by Madagascar while the market for lower grade vanillas is over supplied with prices at unsustainable levels. Even at that, over all qualities continue to degrade and Madagascar is not immune to this phenomena. There is simply not enough money in the current price of vanilla to support the intensive handling which is required to ensure a minimum standard of quality. In the growing and curing process critical steps are being skipped or ignored, cycles are being shortened, and materials are not replaced when they should be. For the vanilla farmer, collector, and exporter it has come down to a question of survival.
Why the industrial vanilla market does not recover continues to elicit intense debate throughout the industry. In our opinion the answer is quite obvious. Whether intentional or not, there seems to be a lot of confusion and misinterpretation when it comes to the FDA regulations reference 21 CFR 169 covering vanilla labeling and standards of identity. This has resulted in a profusion of food products identified as natural vanilla but flavored with ingredients not originating from vanilla beans. Some manufacturers of natural vanillin even advertise that their products meet FDA regulations, and we quote, “without any degree of uncertainty or interpretation” as if there is a need to reassure doubting clients. We are of the opinion that any ingredients used to naturally flavor a food product labeled as vanilla must be made with vanilla beans. A manufacturer is always to free to substitute using a natural flavored alternative ingredient however by doing so, in our opinion; they forfeit the right to call said product natural vanilla product. Doing so would, again in our opinion, be highly deceptive to the consumer and very possibly a direct violation of current FDA labeling regulations. The lack of clarity with regard to labeling and standards of identity in the vanilla trade has been a contentious issue for decades.
However since the vanilla crisis from 2000 – 2004, we believe the practice of substituting has become commonplace within the industry; so much so that we believe several hundreds of tons of industrial vanilla beans are being eliminated from the market each year. In 2010 a total of 1781mt of vanilla beans were imported from all origins into the U.S. market. This is actually 100mt less per year than the 3 year average from 1996 – 1998 which was 1887mt per year. Does anybody actually believe that there are less naturally flavored vanilla food products on the market today than there was 12 – 15 years ago? With vanilla prices at historical lows for the past 5 years there is only one plausible explanation for the absence of recovery.
We believe that if the practice of replacing industrial vanilla beans as a flavor ingredient with other manufactured compounds continues uncontested the vanilla industries of Madagascar, Uganda and other origins along with the tens of thousands of vanilla famers and their families whose livelihood depends on this crop, will most certainly be devastated.
AUST & HACHMANN (CANADA) LTD/LTEE
May 30, 2011
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