Vanilla Market Report No. 39
Over the past 6 months we have seen some very significant changes in the global vanilla trade. Years of chronic weakness in demand and stagnant prices seem to be finally giving way to a new reality. In the peripheral origins such as Indonesia and Mexico supplies are tight and prices are moving up. The real question is how the Madagascar market will evolve going forward. There is still a strong argument to be made for the status quo. For many years now predictions of an imminent rise in vanilla prices have repeatedly been made, and to date those predictions have proven utterly wrong. However this year there is already considerable change in the secondary growing regions. This is where we start our analysis.
Indonesia & Papua New Guinea
High quality vanilla beans from both of these origins are practically non-existent today and the total combined crop will unlikely exceed 125mt. About 50mt from PNG and incredibly only about 75mt from Indonesia who continue to focus on the lower end of the market.
So far the strategy has proven to be quite effective, at least in the short term. Currently low grade industrial Indonesian vanilla beans sell at a 30% plus premium to the best Madagascar industrial grade beans due to their unique flavor profile. Going into 2012 we do not see Indonesian production increasing substantially.
Papua New Guinea vanilla production has been very weak the past few years and will not exceed 50mt in 2011. Furthermore quality has been reduced to one grade……poor! We do not see this market having any impact on global vanilla production at least through the end of 2012.
Uganda
The vanilla market in Uganda has changed dramatically over the past few years. Production is stagnant at around 125 to 150mt, qualities are very inconsistent. A few years ago a joint venture between several parties including the Danish Government, a major Ugandan vanilla exporter and a Danish Flavor House resulted in the consolidation of the local vanilla trade. Thanks to a generous subsidy, a premium over the regular market price is offered to vanilla farmers who deliver their beans to a designated exporter. This has resulted in the group having a virtual monopoly over the Ugandan vanilla trade. On the surface it seems like a good deal, the farmers are guaranteed a premium price, the exporter controls the local market and the flavor house, now Swiss based, has a guaranteed secure supply line for its vanilla.
We also understand that sizeable capital investments were made to support this project. It is difficult to criticize something that brings investment and stability to the Ugandan vanilla market. However, we have serious doubts about how this arrangement will benefit Ugandan Vanilla over the long term. Certainly their exposure and presence on the international vanilla market has been severely diminished as a result.
Many previous end users of Ugandan vanilla have had no choice but to give up either due to a lack of supply, poor quality or an uncompetitive price.
Mexico & French Polynesia
Although Mexican vanilla production rarely exceeds 50mt it still retains a loyal following in both the food service and industrial trade. The 2010 crop was very small and this year’s crop is predicted to be less than 10mt as a result of a severe drought. Prospects do not look much better for 2012. Yet today industrial grade Mexican vanilla has already reached 100.00/kg. Just like Indonesian low grade beans, Mexican vanilla has its own unique characteristics and market value.
Vanilla from French Polynesia enjoys the same type of reputation and with the diminished presence of PNG gourmet vanilla demand and prices for Tahitian vanilla are on the upswing. Prices will easily exceed 200.00/kg for first grade beans this year. Again production will be down over last year and is unlikely to exceed 25mt.
Madagascar
Today Madagascar is again far and away the world’s dominant vanilla supplier. The production from all of the other vanilla origins combined would barely reach 20% of the 2011 crop in Madagascar which we estimate at around 2000mt.
Quality will improve over 2010 and early analytical tests are showing markedly higher vanillin content. As the bulk buying season goes into full swing prices for first quality extraction grade beans remain more or less at the levels they were at the end of the 2010 season.
We see a lot of farmers and collectors vacuum packing vanilla to slow the drying process early in the campaign. There will be far greater demand for black beans than usual this year and vacuum packing will, temporarily at least, keep black vanilla from turning red. It also allows for the vanilla to be held for longer periods of time. Unfortunately vanilla does not respond well to the environment of a vacuum when packed too fresh or not fully cured. Interestingly, this tendency to vacuum pack did not exist 10 years ago and today it is practiced throughout the Sava region. So extensively in fact that locally there is currently a shortage of Vacuum pack bags. We expect many collectors and farmers are preparing to hold part of their stocks in anticipation, or hope, of improved prices in the near term.
We also expect industrial demand for Madagascar vanilla to be stronger this year, again as a direct result of the short fall from other origins. Although still very early, the expectations for 2012 are in line with 2011, namely another good size crop.
Conclusion
In summary we feel that worldwide demand for vanilla will be met by the current production estimates, but only just. This of course is based on the widely accepted but very difficult to prove global consumption number of 2500mt. Surplus vanilla inventories whether speculative or simply unsold have played a large role in keeping prices under control. It is common knowledge that almost 600mt of Industrial grade Madagascar vanilla beans from a speculative play now more than 3 years old still sits in a Northern European warehouse. This vanilla is now under control of the Rado Banking Group. In spite of this we believe the overall surplus of vanilla has shrunk considerably over the last few years and at one time was probably well over 2000mt.
Several current initiatives publicizing the facts behind vanilla labeling regulations and standards of identity for the food manufacturing industry, in particular dairy, seem, at the very least to be raising awareness over this contentious issue. There can been little doubt that the misrepresentation and mislabeling of natural vanilla products in the food industry is costing the markets hundreds of tons of industrial grade vanilla beans. A reversal of this disturbing trend will go a long way to stabilizing vanilla markets over the long term.
As the 2012 crop in Madagascar slowly comes into focus we believe the current trend will continue. Over the past four years the bottom of the vanilla market was tested several times and for the most part that is exactly where the price has remained.
Consequently we see nothing to lose and possible enormous savings if buyers are able to engage in long term commitments with their suppliers. We would continue to recommend covering vanilla requirements as far out into the future as possible.
In other words prices for Madagascar industrial grade vanilla beans are still dirt cheap, historically speaking. We believe the spread between an over supplied market and a short market shrinks each season. With the outer edges of the market already turning it is just a question of time before Madagascar feels the pinch!
AUST & HACHMANN (CANADA) LTD/LTEE
October 26, 2011
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