Vanilla Report no. 37
On the surface it appears that little has changed with regard to the global vanilla market since we gave our last market report at the FEMA vanilla committee meeting in May 2010. Prices remain very low, supplies are abundant and demand, at least at the industrial level remains weak. This despite many predictions made by industry professionals, including ourselves, over the past 3 years warning of an imminent market rebound. There are many factors that make it very difficult to accurately predict exactly when the vanilla market will recover, and even the most seasoned industry professionals are unable to explain why the slump is seemingly unending. Perhaps we are being somewhat idealistic but we firmly believe the recovery is already under way and after a brief look at the markets we will explain why.
Madagascar
The harvest for the 2010 crop started in June and reports to date suggest a smaller and inferior quality vanilla crop than in 2009. There is a huge spread in crop size prediction at this early stage with a low of 800mt and a high of 1500mt being suggested so far. Either number is well off last year’s crop size which was probably closer to 2400mt.
Steady rains throughout July and August made curing of the green beans arduous.With very little sunshine available preparers were forced to store or even vacuum pack partially cured.
Vanillain order to wait for the required sunshine for drying.Although the weather has since improved we expect higher phenol levels than normal.Excess rainfalls, combined with a large percentage of immature vanilla, are the main reasons for this unpleasant phenomenon.
So far prices for industrial quality vanilla beans are still at record low levels; howeverprices for gourmet or prime vanilla beans have already spiked a little due primarily to an absence of gourmet vanilla from other origins such as Papua New Guineaand India.
The flowering for the 2011 vanilla crop in Madagascar, which is already in the very early stages, will be critical in its importance. If 2011 is also smaller than average this could signal the beginning of a series of smaller vanilla crops in Madagascar. This would not be unexpected given the general malaise that exists in the world wide vanilla trade.Years of neglect in the plantations, very little new vines being planted, and a general disinterest in vanilla, are all contributing factors towards the decline of vanilla production.
Uganda
The trend in Uganda is the same as Madagascar, diminishing production, smaller crops and declining quality. We do not expect the total production for 2010 to exceed 150mt. Despite this, prices in Uganda have firmed in the past few months. There is a major international flavor company who hasrecently taken a large position in the Ugandan vanilla market. As there is limited production, this has actually pushed green bean prices higher than in Madagascar. It is our understanding that a mitigating factor in this strategy stems from a Danish Government Aid.
Program for Uganda effectively subsidizing purchases. We do not expect production in Uganda to increase in the near term as farmers continue to switch to other more lucrative crops.
Papua New Guinea and Indonesia
Production in both of these areas has been devastated and it is unlikely that the 2 origins combined will produce more than 200mt of vanilla in 2010. Carry over stocks may boost these numbers but these inventories diminish in size and quality year over year. Furthermore both of these areas were at one time major producers of black or prime vanilla and today that production is practically non-existent. Hence the spike in interest we have seen for Madagascar prime/black vanilla over the last 6 months.
Given the strength and growth of the Indonesian economy we have to wonder how much longer they will continue to support vanilla production as a viable agricultural option. When the vanilla market recovers we expect to see most production in this region shift to Papua New Guinea or India.
India
Although not an area we specialize in we understand Indian vanilla production has been reduced to a level of between 100 – 150mt. Despite the presence of a local market for industrial vanilla, Indian production has not escaped the effects of continued depressed global demand. Furthermore, India has been severely affected by vine disease which has run rampant.
within plantations that were being intensively farmed. With time we believe Indian production will recover and will eventuallyrank second next to Madagascar.
Summary
In our opinion worldwide production of vanilla will not attain 2000mt in 2010.Using the most conservative of estimates this would represent at least a 500mt shortfall. However,as mentioned, in spite of the continued growth of natural vanilla flavor in the food industry, we are not seeing the corresponding growth in consumption.We believe industrial vanilla bean consumption is being severely crimped by questionable flavoring and labeling practices occurring in the food manufacturing sector, in particular dairy. Typical examples ofwhat we are referring to would be:
- The correct application and interpretation for words suchas “natural vanilla”, “real vanilla” “real vanilla beans “ or “natural flavor” as declared on ingredient listing on labels of naturally flavored vanilla products.
- The improper usage of images of vanilla beans, vanilla flowers or the word “Madagascar” on product labels.
- The usage of exhausted vanilla, vanilla specks or vanilla seeds in products where no actual flavor originating from vanilla beans exists.
These are just a few examples of what we believe is an increasing willingness on the part of manufacturers to stretch the interpretations of existing labeling laws simply to facilitate the procurement process and reduce exposure to the risks associated with vanilla beans.
We are of the opinion that these practices are severely impeding the vanilla market’s ability to recover. The vanilla bean brand is being exploited and abused and the countries that produce vanilla, in particular Madagascar, lack the necessary resources to fight what is essentially an attack on one of their most important exports.In our opinion, in many cases, consumers are being duped into believing the products they are buying contain natural vanilla flavors coming from vanilla beans when in fact they do not.
Several initiatives are currently underway in order to determine how these practices may be affecting the industry. These include:
- Testing naturally flavored vanilla products to determine if in fact the flavor comes from vanilla beans.
- Generating publicity via the print media and internet to sensitize manufacturers and consumers concerning the legal definition of what constitutes a natural flavor and how this should be reflected on the ingredient label of any given natural vanilla product.
- Working with federal authorities to determine if any possible violations of U.S. labeling or standard of identity laws are occurring with regard to natural vanillaproducts.
We are of the firm belief that any vanilla products labeled “natural” must contain flavors derived only and exclusively from vanilla beans.
Although the labeling issue is not the only challenge that the vanilla industry has faced over the past 10 years, we believe it is one of the most serious. It is difficult to estimate how much the labeling issue affects vanilla consumption but one thing is certain, if the practice is not reigned in and properly regulated it will only get worse year after year further crippling the vanilla bean industry and hindering prospects for a long term sustainable recovery.In spite of this we feel declining vanilla bean production will eventually force the market upwards. This is already apparent in the black bean or gourmet market. Previously, we recommended that buyers of industrial grade vanilla beans cover their needs as far out into the future as possible; this recommendation remains intact.
AUST & HACHMANN (CANADA) LTD/LTEE
November 2, 2010
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