Vanilla report 30
It would be hard to imagine any commodity in the world today that has had such a complete reversal of fortune as vanilla. Although still very much in demand and an essential ingredient for the food, flavor and fragrance industries, a massive world wide glut of inventory has sent prices spiraling down, probably as low as they have ever been historically. Where as a single kilo of first quality Madagascar vanilla was priced at over 500.00/kg just over 3 years ago, today the value of that same kilo is having difficulty staying above the 20.00/kg level. Having just returned from a field survey in Madagascar, with this report we will attempt to give an overview of what can be expected in the near future. Of course we will assess other important origins as well, but if there is one thing that has remained constant throughout, Madagascar is still by far the dominant vanilla supplier in the world today.
Madagascar
The fallout from the crisis has changed many things in Madagascar, not so much in terms of vanilla itself but more in terms of the companies involved. Two of the oldest and previously largest exporters and preparers of vanilla in Madagascar have virtually disappeared after generations of working the trade. Others have been weakened considerably and very well may disappear in the years to come. Some are simply casualties of bad luck, others bad judgment, in particular on the extent to which the industrial market would follow prices. New players have emerged at all levels adding certain freshness to the industry. We believe we are now at the early stages of a new cycle in the international vanilla trade with Madagascar once again leading the way.
The 2006 crop size is still a subject of much debate. We are comfortable with a range of 1200 – 1500 mt. Perhaps not as large as originally expected due mostly to a larger percentage of short beans. However, inventory from 2005 still exists and we believe that there will be a surplus of Madagascar vanilla at least through 2009. The biggest surprise or disappointment regarding the 2006 crop is the continued presence of phenol in many lots we observed. This phenomenon, caused mainly by insufficient sun curing of the vanilla was very present during the crisis years and to a certain extent understandable. When prices were so high drying beans in the open was dangerous business in Madagascar. Unfortunately the collapse of prices has not eliminated this problem. Given the generous price spread between red vanilla (extraction grade) and black vanilla (gourmet, prime grade) preparers were motivated to try and cure more black beans. To keep the beans from turning red various techniques are used, but the vanilla is not always so accommodating. In many cases the beans turned red anyway. Either way, when not sufficiently sun cured, phenol levels will rise in vanilla beans. We estimate that there are still several hundred mt of phenolic beans in Madagascar, perhaps more. Regrettably, if the price is right, there are still buyers for these beans. In many other cases they are being blended into superior lots.
Another detriment to quality has been the unsavory practice of buying beans far too early in the campaign, usually 2 – 3 months before the actually “official” season starts. These lots usually contain large percentages of short and immature vanilla but are relatively cheap, last season as low s 6.00/kg. Even after moisture loss and minimal preparation the exporter’s cost is still, very low.
These beans are usually shipped in bulk in poly sacs this season at around 15.00/kg. In our minds degrading the quality of the vanilla in such a manner is entirely unnecessary given the very favorable buying conditions that already exist in the market. This practice moves Madagascar in the direction of commoditizing it’s vanilla and in our opinion this would be extremely detrimental to the vanilla industry, in particular Madagascar who still enjoy the reputation of the being the most consistent of all origins when it comes to quality.
The 2007 crop is shaping up to be as large as the 2006 crop with some differences. The original predictions of a much larger crop have abated. Heavy rains since and during the flowering period have damaged some plantations. However the crop will still be abundant and hopefully better quality as beans over all will be longer. The phenol problem will not disappear as easily as there will be a large carry over from the 2006 crop..
There are some dealers suggesting that 2008 may be short due to vine fatigue, and the usual litany of excuses. Even if this were possible, there is such a large surplus we doubt prices will be impacted. We no longer feel there is any possibility (barring unforeseen circumstances) that prices would firm up either in 2007 or even 2008. This will make things difficult for the farmers but thankfully in Madagascar most rotate crops between vanilla, cloves, coffee and pepper, and the same applies to most exporters.
Uganda
The situation in Uganda is somewhat different than in Madagascar. 2006 was a very productive year in Uganda with the total from both crops exceeding 200 mt. Although the quality of the early 2006 crop was quite disappointing, due mostly to early picking, the subsequent summer crop improved dramatically. Ugandan vanilla has slowly been chipping away at Madagascar’s dominance both in the industrial and gourmet/foodservice sector. However quality problems do persist for a variety of reasons. Whether it is picking the beans too early, exporting too early or just not being vigilant during the curing and preparation process, Uganda continues to shortchange itself on quality. As a result, Uganda is forced to sell their beans even lower than Madagascar which is unfortunate since we feel if they could correct these problems they could at least sell at par to Madagascar. With such low prices vanilla farming becomes a less attractive alternative even though like Madagascar many Ugandan farmers practice crop rotation. We estimate that this year’s 2 crops will yield only 150 mt with a very high percentage of splits coming from the first crop.
Indonesia and Papua New Guinea
This is the story of two origins going in different directions. Indonesia has realized they can sell their EP cuts at very attractive prices as no other origin can produce cuts with the distinctive smoky aroma profile. (at least not to date) The last time Madagascar vanilla was at the 20.00 level Indo cuts were below 10.00/kg.That is not the case today as cuts from Indonesia are prices as high as first grade Madagascar beans in some cases. Although we initially would have guesstimated the Indonesian crop somewhere around 200 mt, with the poor weather conditions persisting it is difficult to say exactly. Suffice it to say that they will contribute very little high grade extraction or gourmet beans to the market.
Papua New Guinea on the other hand seems to be finally gaining a foothold in the international vanilla trade mostly via their gourmet grade beans which have been very well received in the European and North American markets. Even industrial grade beans with their strong aroma profile are creeping their way into the market. Decent vanillin contents and pricing well below 15.00/kg make them very difficult to resist. Our belief is that in order for PNG to succeed in the long run they must be vigilant in separating the Tahitensis type vanilla from the Planifolia type vanilla as we do not feel they have yet to master the preparation and curing of the latter quality. We expect this origin to add at least 200 – 250 mt to the world wide market in 2007.
Niche Origins
Mexico, Tahiti, India and The Comoros will all find their way in this very difficult seller’s market. Tahiti seems impervious to market forces, still successfully pricing their beans well over 250.00/kg. The others will find the going more difficult, in our opinion especially India which has developed a reputation for very inconsistent qualities. In total these 4 origins combined may add another 200 mt to the market.
Conclusion
With world wide vanilla production over 2000 mt and a snowballing surplus to boot it would seem prices are destined to stay low for quite some time still. We would encourage buyers to take full advantage of the very favorable conditions that exist for them. Building up inventories is practically risk free as we are certainly as close to the bottom of the market as we are going to get. Politically Madagascar is quite stable, having just completed an incident free presidential election where the incumbent candidate, Marc Ravalomana received a strong mandate. Currency devaluation in Madagascar has been rumored for some time but we doubt this would affect prices by more than 5 – 10%. On the flip side extreme weather conditions could change things quite quickly. We would urge buyers not to be to complacent waiting for the next .50/kg drop in prices. There is no time like the present to take a long term position on vanilla beans.
AUST & HACHMANN (CANADA) LTD/LTEE
February 27, 2007
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