UPDATE ON THE VANILLA MARKET – MAY 2019

As the global vanilla market officially transitions from limited quantities, of poor quality and at record high prices to sufficient, better quality and at slightly lower prices, the possibility of further price declines appears very high then that the collapse of the vanilla market seems very unlikely, at least for 2019. In 2004 at the end of the last vanilla crisis, prices fell by almost 90% over a 12-month period. And a 60% additional amount for the next seven years. Could a similar situation happen now that the most recent crisis has calmed down? We doubt it for the moment given the weak global demand of vanilla bean. On the other hand, a lower harvest than expected in Madagascar could create short-term supply problems. On the other hand, although diminished, global demand for natural vanilla bean is much larger than in 2004. Most of the major industrial users of vanilla bean have opted for the same strategy, that of keeping the inventories lowest possible and buy in the short and medium term. Although vanilla bean prices have fallen significantly compared to levels exceeding $ 600.00 / kg in 2018, we are still at the stage where prices are historically very high with large downward exposure. In Madagascar there is still high quality vanilla from the 2018 harvest which is not yet sold at the time the 2019 harvest begins in the north of the country. This is the same situation in other origins. In the coming months, we expect that efforts will be made to liquidate these inventories as the 2019 harvest progresses. At this point, after a relatively quiet hurricane season, we are hardly considering a path to price increases for vanilla market.

Here are our predictions of vanilla market, for the most important vanilla growing regions, where we are most active, over the next 6 months.

Papua New Guinea – work in progress

PNG continues to gain ground on the global vanilla market. As prices fall and credit becomes available in Papua New Guinea, the stakes are expected to stabilize somewhat between exporters. There is still only one supplier that dominates the market in this region. We estimate that PNG will produce between 150 – 200tm of vanilla pods in 2019, slightly less than in 2018. This includes vanilla exported to Indonesia, usually vacuum packed and partially dried and matured. This is where the process is completed and the product is re-exported sometimes even as vanilla of Indonesian origin. This is unfortunate and confusing for vanilla market buyers as it eliminates any standard of quality.

PNG vanilla, whose process is finalized in Indonesia, although viable, is very different from the original PNG vanilla bean. Keeping green pods on the vines so they ripen properly has been a challenge. Unfortunately, mold problems and green and unstable and immature vanilla pods are still too common. We are optimistic that the quality of PNG vanilla will improve in 2019. There is a real opportunity for PNG to ensure a strong long-term presence in both the industrial sector and the catering sector if they take a better control over their exports and their quality standards. As prices continue to fall, PNG will have to work very hard to keep the vanilla market share they hold over the last 5 years. Otherwise the brand will be abandoned quickly in favor of other origins as was the case after the last crisis.

Indonesia – Instability

Indonesia has surprised us somewhat with superior quality to our expectations and a larger volume than originally advertised. This could be attributed in part to the PNG vanilla bean imports that we referred to earlier. Nevertheless, at this stage, and it is still very early, we anticipate the possibility of 100 – 125tm of the interior of Indonesia with an estimated vanilla market 40-50tm imported from PNG in 2019. As in all origins there is Vanilla plantations on a large scale in Indonesia and by 2020 we anticipate a significant increase in vanilla bean crop yields. The majority of what we see in the market in terms of quality is lower quality vanilla pods, and at times vanilla with high vanillin or even gourmet vanilla bean.

As long as vanilla market prices remain attractive from the producers’ point of view, we anticipate that Indonesia will continue to plant and grow vanilla bean, thus helping to diversify the supply chain.

Uganda – slow progression

Uganda vanilla market continues to show signs of improvement in quality but several obstacles remain. The government seems committed to helping the industry, but so far no tangible results have materialized. Currently the first harvest is started and prices for green vanilla pods have started lower than last season and the vanilla market is stable. This is the smallest of the two annual harvests and is expected to yield 30 – 40tm. The second crop in the fall of 2019 is expected to be much larger. We do not see early picking as in previous seasons so we expect improved yield and quality. It is still very early, but Uganda’s total annual production is expected to be around 100 -125tm depending on the maturity of the crop and favorable ripening ratios. Vanilla production in Uganda is expanding in three distinct regions. Several major users are keenly interested in Ugandan vanilla bean and actively support the industry in the field.

After all, this region produces the same botanical species grown in Madagascar and has the ability to easily produce 250 – 300tm annually. This would go a long way towards restoring the global competitive balance of vanilla market that is seriously missing.

Comoros – painfully progress

Comoros experienced the same late bloom phenomenon as in Madagascar. The harvest will not be as abundant as expected and the harvest volume will certainly not exceed 100tm. On the other hand, given the rigorous control of harvest dates in the region, we do not believe that vanilla bean quality is negatively affected. The majority of production is high-yield vanilla pods of industrial or gourmet bourbon quality. A very small percentage of low quality vanilla is produced. Comoros is an attractive vanilla market alternative in Madagascar for those who are looking for 100% high-performance bourbon vanilla pods.

Madagascar

After several consecutive harvests with a lower yield of vanilla beans, the 2018 crop in Madagascar has recovered to more normal levels of quality. Although it was not a typical harvest, we have seen an improvement especially in terms of vanillin content and stability. Become used to the vanilla of inferior quality, the industrial buyers of vanilla reacted in a particular way. In fact, once it was discovered that the lower quality pods had the same level of vanillin yield as the very high quality pods from previous crops, this is where the buyers focused their attention. As a result, today there is very little quality left available while there is still a surplus of Madagascar vanilla of superior quality. Despite a fairly significant improvement in quality and a drop in price there was no visible recovery in demand for vanilla. In fact, there has been additional erosion. In our opinion, the price of vanilla will have to go down a lot to ensure that world demand returns to the same level as before, especially with regard to Madagascar vanilla.

We estimate a crop yield of 2018 in Madagascar of approximately 1600 – 1800tm with about 1200tm exported at the end of March according to government statistics. The higher yield is mainly due to the maturity of green vanilla and improved ripening ratios. This has also contributed to the increase in the volume of higher quality pods as opposed to lower quality pods. There has been less pre-financing of the 2018 harvest and less (fortunately) demand for vanilla matured and dried by an accelerated process. These two factors have contributed immensely in the improvement of quality.

The 2019 harvest looks slightly different given the very late bloom and less abundance than expected in most regions. Although we do not expect the disastrous quality that some have predicted, it will be a challenge for Madagascar to maintain the same quality in 2019 as it did in 2018. The new government seems more proactive when it comes to vanilla. Currently they are implementing measures to protect the 2019 harvest.

This includes a deadline of June 1 for the export of undeclared reserves and apparently very harsh harvesting dates for many of the regions. The single most important factor affecting the quality and yield of any vanilla crop is the maturity or lack of green pods. These measures are intended to discourage the theft, accelerated ripening and drying of vanilla, pre-financing and speculation. It remains to be seen how effective these measures are. Exports of the 2019 crop are expected to be in the middle through the end of October.

It is far too early to estimate the 2019 harvest volume. Much will depend on the government’s ability to enforce the above measures that could easily improve the yield and quality of the crop. However, we can say with relative certainty that the volume of the 2019 harvest will be smaller than in 2018.

 

Other regions – missed opportunities

Despite four years of record price increases in vanilla, growing regions such as India, Mexico and French Polynesia have not been able to increase their production of vanilla beans. We know very little about the production of vanilla from India but for many years we have heard of an imminent explosion of production that has never materialized. Domestic consumption may be partly responsible, but the region is still a mystery to us when it comes to vanilla production.

Vanilla production in French Polynesia has fallen as primary exporters continue to ploy to keep prices well above Madagascar’s levels, thus discouraging market expansion and encouraging buyers to look for alternatives such as market quality. PNG Tahitian type.

The production of Mexican vanilla is less than 10tm and unfortunately seems to suffer, without significant increase, with very limited availability despite three years of favorable prices.

 

Conclusion

Although we see several positive signs emerging in the global vanilla market, the trade still has a long way to go before it can fully recover.

Vanilla vines planted in the last 3-4 years will start producing in 2019 and even more in 2020 when global vanilla production could increase significantly. Madagascar will likely see a drop in quality and production for 2019 but we believe it will be far from as severe as many predict. A recent vanilla market report circulating in the industry suggests that vanillin content for the 2019 harvest in Madagascar vanilla would not exceed .4%, that the flight of green vanilla bean was creeping and that the residual inventory of 2018 was already sold. Very alarmist in our opinion. This is the traditional “ridiculous” period in Madagascar where all kinds of false information circulate in the market. It is perfectly normal that farmers and collectors prefer to keep prices high. The reality is that it is impossible to make a clear and concise assessment of any vanilla crop until the harvest is complete and ripening and drying have begun. In Madagascar it will not be until August / September. The initial prices for green vanilla bean in the northern region of Ambanja are extremely high considering the current state of the vanilla market. This should not be considered a barometer for price direction since the region accounts for only about 5% of the total crop. There are an unlimited number of factors that drive these prices.

The realization that complete vanilla bean ripening and drying contributes to better yield and improved quality seems to have an impact and influence in all origins. The harvest of immature vanilla is still a serious problem but not at the level of previous years.

The government of Madagascar still allows the accelerated ripening and drying of vanilla bean and the extraction of green vanilla. We hope that they will take the necessary steps to restrict these practices which are extremely harmful to communities throughout the vanilla region as we have repeated many times in our previous reports. Initial reports suggest that there will be an increase in demand for accelerated ripening and drying. A new facility is being set up in Antsohihy, 200km from Ambanja. This is bad news for Madagascar’s vanilla communities.

The demand for vanilla exhausted (vanilla waste after extraction), and vanilla seeds sorted from these materials has exploded in the last 12 months. The prices for what is essentially a waste product with absolutely no taste characteristics keep increasing. We saw the same trend during the last vanilla crisis. Some food producers add these products to their formulation simply to include the words vanilla pods or natural vanilla bean on the declaration of ingredients. Finally the product will be flavored with natural vanillin or similar products that are not derived from vanilla pods.

While it is clearly misleading for the consumer, it is an indication that some food producers are still willing to go around the rules as long as prices remain prohibitively high.

Even with the possibility that the global vanilla market is still experiencing some unexpected hurdles, the trend is undeniably moving towards lower prices in the long run.

Despite the smaller than expected harvest in Madagascar the other growing areas will, overall, have good harvests in 2019 and by 2020 there could even be a significant surplus in global vanilla production.

Buyers should maintain a disciplined approach and ignore the set of rumors that will certainly circulate in the coming months. Even at current levels, vanilla prices are not sustainable in the long run. In order to avoid a potentially catastrophic collapse in 2020, we believe that an additional price correction in 2019 is required. Only buyers have the power to lead the market in this direction.