May 2017 – [English]

19 May

VANILLA MARKET UPDATE – MAY 2017

The turmoil in the global vanilla trade continues unabated as the 2017 green vanilla campaign gets underway in Madagascar. This market update will focus only on Madagascar as other vanilla growing regions, with the exception of Papua New Guinea where over 200mt of vanilla is expected, will have a negligible impact on the global vanilla production for 2017. Indonesia, India and Uganda are all expected to produce relatively small crops, probably well below 500mt combined. We will assess these markets in more detail later in the year.

After a disastrous 2016 campaign, based on the activity we are currently seeing on the ground in Madagascar at the onset of the of the 2017 harvest, we are expecting the situation to deteriorate even further, before we see any improvement. There is no historical precedent as far as today’s vanilla prices and quality are concerned. We are now in uncharted waters and it remains to be seen how much further industrial buyers in Europe and North America are prepared to pay for vanilla which continues to deteriorate in quality and increase in price. The 2017 Madagascar crop could very well be the worst quality crop delivered to the market in decades.

In Madagascar, even though we are well in advance of the official harvest dates in most regions, green vanilla beans near roads or populated areas have already been harvested. Only in the most remote villages is there any hope for reasonably mature crop even though growers have little incentive to risk theft by leaving the beans on the vine one day longer then they have to. Cyclone Enawo which devastated the town of Antalaha and surrounding regions earlier this year probably reduced the expected crop size by at least 20%. Furthermore, very immature beans ripped off the vines by high winds have been recuperated and will be added into the 2017 crop pushing quality and yields down even further.

One would think that the large industrial flavor houses who had the greatest impact on the outcome of the 2016 crop would take a more reserved and sensible approach in 2017. Unfortunately to date we see evidence that the same pattern of reckless buying activity is emerging on the ground. Large amounts of capital are already being advanced fueling an extremely chaotic situation before the official harvest has even begun. The quick curing of green vanilla, a practice we believe has contributed enormously to the current state of the market and has an extremely negative social impact on the vanilla trade, will loom heavily as a result of the demand created by these companies.

Again we expect the blame for the sorry state of the vanilla market to fall squarely on the shoulders of the government of Madagascar, the growers, collectors and exporters of the local vanilla trade. They will also pay the heaviest price when the market collapses as it most certainly will.  However, in our opinion, it is the industrial buyers who continue to pre-finance and encourage the quick curing of green vanilla who bear most of the responsibility for the state of the current vanilla market. For these companies, market share is everything regardless of the short and long term consequences imparted on both the global vanilla trade and the hundreds of small and impoverished communities in the vanilla regions of Madagascar.  Ethical and sustainable procurement practices have been brushed aside in favor of the misguided concept of any vanilla at any price. For smaller companies who pride themselves on producing quality vanilla products by way of a sensible and fair purchasing these are extremely frustrating and difficult times.

We are still about 4 months away from the first lots of traditionally cured vanilla being available and many users are coming to us asking for assistance in trying to formulate some sort of coherent buying strategy. How can we advise anybody to buy historically poor quality vanilla at 25 times the price they paid for far better quality less than 5 years ago? How could we advise any company to pre-finance entities in one of the poorest countries in the world, with little or no recourse and expect an equitable outcome? How can any vanilla company support the regressive practice of quick curing or extracting green vanilla when it only encourages the further degradation of vanilla quality, crushes yields, and wreaks havoc on the lives of ordinary citizens in the vanilla regions of Madagascar?.

We feel there is still a possibility for the market to stabilize before the end of 2017 if enough industrial end users reformulate out of natural vanilla for their food and beverage products. (The food service and retail market for bourbon vanilla beans has already collapsed). There are natural solutions available for those who wish to get away from this very unpredictable and volatile raw material,  if not permanently, at least temporarily. We do not take this suggestive course of action lightly. Our long term survival is dependent on a reliable supply of good quality vanilla beans, something simply not possible from Madagascar in today’s market. We have seen industrial demand falling off recently, however a more precipitous and abrupt drop would be exactly what the market needs to save it over the long term. We believe if the current pricing and quality trends continue for vanilla beans, certain segments of the market may be lost for the indefinite future. In fact we may already be well on our way to this reality. We urge companies already active on the ground in Madagascar, or considering getting involved at this early stage  by way of quick curing or pre-financing, to reconsider their strategy on both a cooperate and sustainability perspective. Perhaps if the end users of vanilla flavors from vanilla beans knew of the chaos and social destruction these irresponsible and reckless procurement practices were causing on the ground in Madagascar they might step back and re-evaluate their strategies.

 

Aust & Hachmann (Canada) Ltd/Ltee.