The Vanilla Market in Crisis: Oversupply, and the Road Ahead
• May 2026 •
A Market in Prolonged Decline
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Quality and Governance Under Pressure
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Buyer’s Market — But Not Forever
The global vanilla market continues to struggle with unsustainably low prices and large-scale overproduction. Despite positive developments in late 2025 – namely the elimination of Madagascar’s USD 4.00/kg vanilla export tax and the removal of U.S. import tariffs on vanilla, the global market today remains in a highly precarious state.
Adjusted for inflation, vanilla prices in both Madagascar and Uganda are now at historic lows, with no meaningful recovery expected in the near term. The market is heavily oversupplied, with additional large crops expected in 2026. To the best of our knowledge, there is currently no coordinated plan in Madagascar aimed at mitigating the severe economic hardship being experienced by vanilla-growing communities throughout the northeastern region of the island. Significant challenges lie ahead for the industry.
Since vanilla prices reached historic highs approximately ten years ago, the market has been in a prolonged state of decline. Under normal circumstances, prices would likely have bottomed out several years ago. However, two major events interrupted the downward trend and ultimately contributed to the difficult situation facing the market today.
As prices surged and peaked in 2016, vanilla cultivation expanded aggressively throughout Madagascar and in other producing regions such as Uganda and Papua New Guinea. Most of these new plantations began contributing meaningfully to annual production by 2020, which would ordinarily have increased downward pressure on prices. However, the onset of COVID-19 created unprecedented demand for vanilla as consumers around the world spent more time cooking and baking at home. This led to a significant increase in demand for industrial vanilla and helped stabilize prices well above USD 100.00/kg FOB, despite the broader downward trend that had already begun. Strong prices also encouraged continued planting at origin.
(The impact was considerably less pronounced in the gourmet or black vanilla segment, as the food service industry, including hotels and restaurants, was severely affected by the pandemic.)
As the effects of COVID-19 diminished and vanilla prices once again began to soften, a group of exporters, backed by a highly controversial business executive who is no longer in the country, persuaded the Malagasy government to impose a fixed minimum export price for vanilla of USD 250.00/kg, far above prevailing market levels. The objective was to force international buyers to pay substantially higher prices through a select group of exporters, based on the assumption that buyers had no viable alternative source for Madagascar vanilla.
The policy was profit-driven, poorly conceived, and ultimately unsuccessful. However, it artificially inflated price pressure on Madagascar vanilla from 2022 through 2024. When the fixed-price policy eventually collapsed, the downward spiral in prices resumed.
Production Expansion and Market Conditions
Since vanilla planting had continued virtually unchecked since 2016, production expanded dramatically. Over the past several seasons, crop yields have surged, with Madagascar alone potentially exceeding 4,000 metric tons in 2025. An additional 3,000 metric tons or more are expected in 2026.
While vanilla production has begun to decline in Indonesia and Papua New Guinea, output remains strong in both Madagascar and Uganda.
Locally, the Malagasy government has adopted a largely “hands-off” approach toward the vanilla sector, issuing hundreds of export licenses while effectively abandoning any meaningful minimum price policy. This has resulted in a flood of offers on the international market, many originating from companies with little or no experience in the vanilla trade.
At the same time, export prices have fallen, and it is becoming increasingly difficult for exporters to respect the supposed official minimum export prices of USD 50.00/kg for black vanilla, USD 25.00/kg for long red vanilla, and USD 15.00/kg for cuts. We use the term “supposed” because the government has never formally issued a decree clearly outlining these minimum export price policies.
Quality from Madagascar has been somewhat inconsistent for the 2025 crop. Although cut quality, or G3, has generally been excellent, vanillin yields for long vanilla, or G1 quality, have been disappointing across large volumes. Given the additional time and effort required to prepare G1 qualities, cuts currently carry less risk in the present price environment.
Buyers of black or gourmet vanilla must be particularly cautious, as strict processing standards for these grades are not always respected in an effort to reduce costs and increase margins. Overly humid and unstable vanilla, often vacuum-packed far too early, continues to circulate openly in the market.
There are now rumors that the government may consider keeping the vanilla market open year-round, an unprecedented move. The theory is that extending the marketing season would increase export volumes. This reasoning is based on the same underlying logic used to justify the issuance of so many export licenses: the more exporters there are, the more vanilla will be exported.
We believe this logic is fundamentally flawed and likely to result in further declines in quality as one crop season increasingly blends into the next. Quality standards will become further diluted, particularly as many new license holders lack the experience and technical expertise required to properly cure, grade, and export vanilla. In addition, reduced oversight will make maintaining organic certifications and traceability programs on a large scale significantly more difficult. To date, however, the Madagascar government has not issued any definitive statements regarding these proposals.
Outlook for the Market
Vanilla has experienced similar boom-and-bust cycles since the full liberalization of the sector. However, the current price depression may persist considerably longer due to the substantial inventory buildup accumulated over recent years.
The two major events discussed earlier effectively kept the market artificially inflated for several additional years beyond what would normally have occurred. As a result, the current low-price phase of the cycle may also last longer than historically expected.
We anticipate another large Madagascar crop in 2026, currently projected at approximately 3,000–3,500 metric tons. This is expected to be a very mature crop, with a significantly higher proportion of long vanilla (G1) relative to cuts grade (G3).
Many exporters have expressed surprise at the relatively weak demand for G1 qualities compared to G3 qualities, particularly given that both grades are trading at historically low-price levels. We believe this discrepancy can best be explained in percentage terms.
In the current low-cost environment, G1 qualities have consistently been priced at nearly double the price of G3 qualities. Such pricing would imply nearly double the extraction yield for manufacturers, something that is simply not supported by reality. Typically, G1 vanilla yields approximately 1.6–1.8% vanillin, while G3 vanilla yields approximately 1.0–1.2%. When viewed in these terms, such a wide price difference between the two grades becomes difficult to justify within the requirements of industrial formulations.
A similar situation applies to organic and fair-trade vanilla. Whereas previous markets supported modest premiums for certified grades, such premiums are now becoming increasingly expensive in percentage terms.
There is little doubt that current price levels are unsustainable over the long term. However, with major industrial vanilla buyers clearly in a dominant negotiating position, the market must adapt accordingly.
The immediate priority should be reducing excess vanilla inventories worldwide by making it clear to buyers that opportunities such as those seen in today’s market are exceptionally rare, with the last comparable market environment occurring roughly twenty years ago. Buyers should be encouraged to secure forward coverage for as long as their budgets and supplier relationships permit.
In our case, we are strongly recommending coverage through the end of 2027 and into 2028. While it is always possible that prices could decline further, a former buyer for the world’s largest spice company once remarked to his clients:
“The only guarantee I can make regarding vanilla prices is that they will not go to zero.”
Aust & Hachmann (Canada) Ltd
The market reports that we issue are based strictly on our opinions and observations. We believe we have presented a reasonably accurate portrayal of the global vanilla market in very general terms. The reports date back almost 20 years and are all available on our web site:
https://www.austhachcanada.com/reports/
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