Vanilla report 24
The five-year period of historically high pricing of vanilla, and erratic availability and quality, is finally coming to an end. At the industrial level, prices increased almost 25 fold over this period and as a result, worldwide consumption of natural vanilla has dropped considerably. There were many factors that contributed to the price increases, most of which originated from the Madagascar market which continues to be the worlds dominant vanilla supplier. Before discussing Madagascar, we will touch on the other major vanilla producing regions.
Papua New Guinea
Papua New Guinea is an emerging vanilla producer and they have increased their production significantly to the point where 200 MT is expected from their region in 2004. However, due to a disorganized infrastructure, they have been beset with quality problems and, as a result, there is currently a surplus of PNG vanilla. Over the last six months, prices have dropped by approximately 40% – 50%. We believe this market will recover – the quality is already improving and a more concentrated effort is being made to separate the Planifolia and Tahitensis vanilla – both of which are found in Papua New Guinea. Given this markets ability to compete a very low price levels, they are well positioned for the future. Production could double by 2005 – 2006.
Indonesia
Once again, Indonesia vanilla output is coming up short. Production for 2004 will probably not exceed 200 MT due to the fact that 90% of the stock is still being picked early and cured to a very low standard. The demand for low grade Indonesian vanilla remains firm. Prices did increase to approximately $500.00 kilo but they are now regressing rapidly. Apparently, in many instances, some Indonesians are mixing cheaper PNG vanilla beans in order to cut costs. Once again, we expect the quality situation to improve and production to increase as the vanilla beans are left on the vines for longer periods of time – however, this impact will probably not be felt until year 2005.
Uganda
Unfortunately Uganda failed to take advantage of the short market to increase their market share. The last two crops were disappointing in terms of quality due to early harvesting; nevertheless, we are expecting 100 – 120 MT from Uganda in 2004. Local producers are well aware of the current market conditions and there is little incentive to pick beans early. We expect the quality to improve and a significant inventory to be available by September 2004 at price levels that could be discounted 60% – 70% over the last crop (February-March 2004). Since Uganda beans are well established in the flavour and fragrance industry, we expect Uganda to remain very active in the market over the long term.
India
Much has been said about Indian vanilla production that will increase to over 60 MT in 2004; however, in our opinion, this vanilla has yet to break through significantly due to inconsistencies in the flavour and fragrance profiles. Intense speculation in the Fall of 2003 for green beans has resulted in very expensive Indian vanilla that is now coming to market. It remains to be seen whether India will be able to improve their quality control and to adjust long term to a falling vanilla market.
Madagascar & the Comoro Islands
Post ‘Cyclone Gafilo’ harvest estimates are as follows:
- • approximately 1000 to 1100 MT regular grade beans
- • approximately 200 – 300 MT cyclone quality beans (immature vanilla beans torn off of the vines during the cyclone and subsequently cured)
- • 100 MT Comoro vanilla beans
In addition, we estimate that there are approximately 200 – 250 MT of Madagascar/Comoro vanilla beans that remain unsold at origin or held in warehouses in Europe and/or North America. Quality was much improved for the 2003 crop, however, because exporters were unable to find buyers for their black beans, these beans were mixed in with industrial grades resulting in a crop with a significantly higher moisture content than usual. At origin, prices have already started to fall dramatically due to product surplus, weak demand and a significant devaluation of the local currency in Madagascar over the last three months. If the current trend continues, we would expect prices for Madagascar vanilla to be reduced by approximately 60% – 80% before the 2004 crop comes to market.
We do not want to minimize the impact of Cyclone Galifo as it did destroy approx. 500 MT of vanilla, however, since the initial crop size for Madagascar was projected at 1600 MT or higher, the market was not affected. However, it is important to remember that it will take a minimum of three years to replace the destroyed vines, thus the immense crops which were initially projected for 2005 – 2006 (2000 MT plus), will be significantly curtailed. Under normal circumstances (see below) the crop from Madagascar and the Comoro Islands will be available by September – October 2004. Due to the cyclone, qualities will be variable but will improve as buyers are able to assert more selectiveness when purchasing due to over supply and continued falling prices.
The Malagasy Export Initiative
Many of you may already be aware of the proposed initiative that briefly would entail the following: there would be no exportation of Madagascar vanilla allowed after May 31st, 2004, and exports would not resume before December 20th, 2004. The proponents of this initiative claim, amongst other things, that the objective is to control or curtail the export of the ‘cyclone vanilla’ – allowing exporters to separate qualities and also to ensure an orderly decline in pricing. On Tuesday, May 4th, and Wednesday, May 5th, a meeting of the Malagache vanilla exporters will take place and every attempt will be made to have the Government intervene and enforce this initiative especially in view of the significant losses some exporters are facing.
Aust & Hachmann is unequivocally opposed to this initiative for many reasons. To begin with, when it became apparent that some companies had misjudged the vanilla market a similar idea was floated and soundly rejected by Government of Madagascar earlier this year. Cyclone Galifo seems to have created an impetus to try again to push this initiative through except now, the theme is to protect Madagascar’s quality! We find this initiative not only hypocritical but potentially extremely damaging to Madagascar’s reputation and would most certainly result in the continued decline in the worldwide consumption of vanilla. During the five years that we have just experienced when prices increased to unprecedented levels while quality and consumption diminished, to the best of our knowledge, an initiative of this type was never proposed. Furthermore, when Cyclone Hudah hit in April 2000, no such initiative was proposed. To suggest that this initiative would help to preserve the quality of Madagascar vanilla is ludicrous; we believe the only way to maintain quality is through reasonable, competitive pricing when buyers have the choice from whom and where to purchase their vanilla requirements. We have all seen what has happened to the quality of vanilla of all origins over the last five years. One of the many wonderful benefits of a falling market is the fact that vendors at origin have no choice but to enforce strict quality measures or they will be unable to sell their product. Some Malagache will of course attempt to mix cyclone vanilla, but the quality of the latter is so poor we doubt this will have any impact on first grade conventional product.
Proponents are suggesting that Madagascar has already been surpassed by vanilla producers from Uganda and India and, in our opinion, nothing can be further from the truth. Madagascar is still the world’s dominant vanilla supplier and out-produces all the other vanilla growing regions combined. To the best of our knowledge, Madagascar is also the world’s lowest cost producer so that even when vanilla falls below $50.00 kilo, as we believe it most certainly will in the near future, Madagascar can still compete profitably.
In our opinion, this initiative is nothing more than a blatant attempt to control and manipulate the vanilla market so that those who are holding inventories will have a much better chance to minimize their losses. Ironically, we believe some of these individuals were fervently speculative in the last quarter of 2003. It is apparent that this strategy has backfired badly and now they are turning to what we believe are desperate and potentially very damaging measures. In the meantime, should this initiative pass, those who managed their inventories well, will be unjustly penalized by the fourth quarter of 2004. This would also apply to the Malagasy exporters who promptly sold their inventory rather than speculate and likewise for end-users who have correctly positioned themselves in relation to the current market. If the Government intervenes, what type of message will they be sending the worlds vanilla market? The proponents of this initiative advise that this is by no means an attempt to influence pricing; in our opinion, this is an absurd statement – especially considering the fact that the fourth quarter is an extremely active period in the vanilla market. This is akin to OPEC telling the world – three months prior to the approach of the winter season – they will not ship any oil and try to have us believe this will not effect the pricing. The Government of Madagascar has let the vanilla market work freely since it was dismantled more than 15 years ago and, in our opinion, should the Government decide to intervene now, the consequences would be catastrophic. The price of vanilla has been falling in an orderly manner for a few months and the market will slowly begin to stabilize. This initiative would only serve to de-stabilize vanilla prices, and further discourage end-users and buyers from coming back to the market.
Aust & Hachmann will make every effort to oppose this initiative and we implore other buyers, importers and end-users of vanilla beans to voice their opinions. We are confident that once the facts have been carefully examined, there can only be one effective strategy for Madagascar, and that would be to keep an open vanilla market.
AUST & HACHMANN (CANADA) LTD/LTEE
May 3rd, 2004.
**In the near future, we will attempt to advise the relevant e-mail addresses of the parties in Madagascar whom you may contact should you wish to voice your own opinions with regard to the initiative.
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