Vanilla report 023
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 a period of five years 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. This report will briefly summarize Aust & Hachmann’s assessment of each of the major vanilla producing areas and how we see the market evolving through 2004 – 2005.
Madagascar and the Comoro Islands
As the world’s primary producer of vanilla, it is still Madagascar that dictates the market. In 1998, it was still possible to purchase first grade Madagascar vanilla of either red or black quality at US$25.00 – US$30.00. In December 2003, the price of Madagascar vanilla peaked at US$525.00 – US$550.00 kilo. Over the same period of time, we estimate the world’s consumption of vanilla from all origins fell from a high of 2500 MT to the current level of 1500 MT – possibly even lower. Madagascar’s pricing started to increase in 1999 due to diminished production and lack of interest in the trade.
Cyclone Hudah which struck Madagascar in 2000 destroyed 30% of the crop and from this point onward, prices escalated at a very fast pace. Other factors such as cool weather, speculation and poor yields contributed. Last year, Madagascar’s crop yielded only 500 MT even though projections for the 2003 crop indicated in excess of 1000 MT. After the 2003 crop, buyers were anticipating a lower price in 2003 but in fact the pricing doubled from US$250.00 to over US$500.00 kilo. The crop was poor due to unreasonable weather during the flowering period that took place in November/December 2002. Since the year 2000, many new vanilla plantations established in Madagascar and since it takes three years for a vanilla vine to produce beans, the initial forecast for the 2004 crop was very large – in excess of 1500 MT. Flowering in 2003 was very heavy and the weather conditions favourable.
Recently a very large cyclone “Gafilo” hit the centre of the vanilla growing regions of Madagascar. Despite the severity of the storm, preliminary estimates forecasted that only 20% – 25% of the crop was destroyed. Therefore, in spite of the cyclone, the 2004 crop that is expected to be available in October/November 2004 is predicted to be at least 1000 MT with the Comoro Islands contributing an additional 100 MT. The price is already reflecting this assessment and has fallen from US$550.00 in December 2003 to the current level of around US$425.00 to US$450.00 kilo. It is believed there is sufficient inventory to carry the market into the summer months.
Indonesia
Like Madagascar, Indonesia saw its vanilla production fall tremendously towards the end of the 1990’s. Although the reasons were similar, Indonesia was experiencing very unfavourable weather patterns for a number of years which greatly effected vanilla production. For the past five years because of the high pricing of vanilla from Madagascar, Indonesia has focused their production on low-grade vanilla. This grade is targeted primarily towards the USA market. Indonesia’s pricing has also increased from a low of US$10.00 kilo in 1998 to a high of US$450.00 kilo in January 2004. With the softening of Madagascar’s pricing, Indonesia’s pricing has also declined and the current price for low-grade Indonesian cut vanillas stands at US$350.00 kilo. Indonesia’s production is expected to increase as rapidly as Madagascar’s; however, yields are expected to increase as the farmers will have less of an incentive to pick the beans early in a falling market. In 2004, we expect the total Indonesian production to exceed 300 MT.
Papua, New Guinea
This is an area that has become more strategic over the past few years, however, due to quality issues and a lack of infrastructure within the vanilla growing network, it is difficult to say if PNG will be able to maintain their market presence. PNG vanilla is a blend of Planifolia and Tahitensis characteristics and is considered a hybrid vanilla. Although in 2002 – 2003, PNG made good progress capturing market share, recent quality issues have hurt them. Production in PNG increased from 40 MT to over 200 MT over the last four years and generally they harvest vanilla all year long. The pricing of PNG vanilla reached a peak of US$325.00 in late 2003 and today’s pricing ranges between US$200.00 and US$225.00 kilo depending on quality.
Uganda
Uganda has been producing vanilla since the mid 1960’s and although the pricing is usually discounted against Madagascar, Uganda has experienced the same increase as everyone else with pricing rising to almost US$400.00 kilo in early 2004. In the long run, we expect Uganda to maintain its presence on the market as they continue to produce between 80 MT and 120 MT per year. Furthermore, since their product is very similar to that of Madagascar, Uganda vanilla is considered to be a cost effective alternative.
Uganda also has the capability to compete with Madagascar even if pricing is reduced to 1998 levels.
India
Much has been said of Indian vanilla over the past few years as their production has increased dramatically and vanilla plantations are popping up in many of the spice growing areas such as Karala. India can produce very nice vanilla but to date, Aust & Hachmann feels the quality has been too inconsistent for our company to make a commitment. Indian vanilla tends to be over-priced and we are not convinced that India will be able to compete as the softening market intensifies. Production in 2004 is expected to exceed 100 MT.
Mexico
Although Mexico was one of the worlds leading producers of vanilla, and despite the higher pricing of vanilla, production over the last five years had diminished greatly from a level of 50 MT to between 15 MT and 20 MT in 2004. The vanilla growing regions of Mexico have experienced very unfavourable weather conditions over the last few years; furthermore, in the mid 1990’s when the price of vanilla fell below US$50.00 a kilo, it was impossible for Mexico to be competitive on a worldwide basis and several vanilla plantations were abandoned. Overall, the standard of living in Mexico is higher than most of the other vanilla growing regions and since vanilla is extremely labour intensive, we do not believe Mexico will be able to maintain its presence on the market except in special cases.
Tahiti
Tahiti is still the only area that produces 100% Tahitensis vanilla beans. Although production is limited, there is a small but consistent market for Tahitian vanilla. While production has diminished over the last few years, we believe that in the short term, Tahiti will remain an important contributor to the vanilla market. At one point we felt that PNG vanilla may eventually replace Tahitian vanilla given their ability to produce a type of tahitensis bean, however, we now feel in the short term this will not occur due to the quality issues mentioned previously in Papua New Guinea. Tahitian vanilla is primarily for the foodservice trade but does have applications particularly in the flavour and fragrance industry.
Tahiti’s crop is expected to be approximately 10 MT – 15 MT and will be available in July/August 2004 and it is still too early to forecast pricing.
Summary
Aust & Hachmann deals only in vanilla beans and associated by-products. We are quite pleased that this period of very high pricing is finally coming to an end. We realize the damage the high cost of vanilla has inflicted on consumption; in particular, the lack of activity in the Japanese market and we would like to do whatever is necessary to regain our position as pricing becomes more reasonable. We are still very loyal to our tradition of always supplying the best available quality of natural vanilla at acceptable price levels.
AUST & HACHMANN (CANADA) LTD/LTEE
March 24, 2004
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