Vanilla traders see signs of a possible turnaround in prices
International vanilla prices have started to ease moderately as a slowdown in demand prompts sellers to lower their pricing ambitions. This is particularly noticeable on pricing indications from main origin Madagascar, but can also be seen from rival origins.
It is clear though that prices remain high in historical terms and there is a long way to go before prices reach the more sustainable lower levels desired by many in this sector.
The general consensus is that while demand is far from crashing there has been a decrease over the last few years.
European traders have recently been indicating a price range of USD575-600 per kilo fob Vohemar for Madagascar extract type grade (US quality) vanilla prices. For the purposes of IEG Vu’s own prices data, we have taken USD587/kg as the current average.
Moreover, a number of well-informed industry contacts told IEG Vu this week that it is possible to find offers around USD550/kg for first grade extraction vanilla from Madagascar. Inferior quality grades are available for less than USD550/kg fob.
Towards the end of 2017, traders had indicated a possible decline in prices at some stage in 2018. It therefore appears that so far this year at least any such downtrend is proving to be very gradual.
One European trader said one of the key reasons for prices maintaining high levels is that stocks are at their lowest in consuming countries and supply from Madagascar and other origins is deliberately being kept low by farmers/sellers so that they can keep prices supported.
"Nobody can say with certainty that prices are going down for 2018"
The trader noted that this phenomenon of retaining stock on farms hardly ever happens. For years, small farmers sold all or part of their vanilla to intermediaries in the sector by the end of December. This year, it was estimated that around 400 tonnes were still available in the bush as of the end of January 2018.
“We can generally say that the average prices of the 2017 harvest are 60% higher than those of the previous one,” the trader added.
Gregoire Courme of French trader Aromatum attributed the continued high prices to farmers harvesting immature beans in Madagascar last year. This has resulted in a low level of vanilla flavours; limited ratio between green and cured beans, which has decreased the quantity of material on the market; and local speculators who have invested money made in the rosewood business into that of vanilla.
David van der Walde, director of Aust & Hachmann (Canada), told IEG Vu: “Nobody can say with certainty that prices are going down for 2018, but currently in the market you can find vanilla at lower prices than a few months ago. That has more to do with (Madagascar) government actions to curtail the exports and stop the exports entirely at the end of June in order to try and protect the 2018 crop being harvested too early or exported too early.”
Van der Walde added he expects 2018 vanilla prices to be lower than those of 2017, but remaining at historically high levels.
It is now felt that the impacts of cyclone Enawo in March 2017 were not as severe on last year’s crop as initially feared and that the overall volume was probably close to 1,600 tonnes, enough to meet the immediate needs of the industry.
"There are some companies which still need to buy vanilla and even at these price levels they buy it"
The potential losses from Enawo were offset by new plantations entering into production. The European trader noted these young plantations will continue to produce and gradually increase the volume of vanilla available in Madagascar. “It can be reasonably estimated that this will really take effect by the 2019-2020 harvest,” he added.
Interest in the sector holds strong, drawing coverage from mainstream media, such as the BBC, which interviewed the author of this article for a slot on its Breakfast programme of May 7.
Douglas Daugherty, president of the Vanilla Corporation of America, told IEG Vu: “The global demand for vanilla beans has been decreasing the last couple of years as a result of the extremely high vanilla bean selling prices.”
Van der Walde observed that although the large multi-national companies are able to absorb the rising costs, it is clear that consumption has fallen, albeit gradually. “That will contribute to the market turning, of course. But we have also noticed there are some companies which still need to buy vanilla and even at these price levels they buy it. Those are usually the more critical formulations, such as Häagen-Dazs, Coca-Cola or famous perfume or beverage companies. They simply cannot change their formulas. They will ride out the storm and make more money later, when the cost is lower,” he said.
Van der Walde summed up current demand as steady and estimated that overall consumption has fallen by up to 30% over the last few years. Moreover, this ties in with a large drop in vanilla output. “The producing regions are not running at the levels they could be producing at,” he noted.
Daugherty noted that due to the extremely high selling prices for vanilla beans, there is a lot of adulteration and mislabelling taking place in the food and flavour industries.
“Adulteration and mislabelling of ‘natural vanilla’ products decreases the demand of vanilla beans needed to make these products,” Daugherty observed. “An example of this is the increasing demand for vanillin ex-eugenol from China. Vanillin ex-eugenol is derived from clove oil and clove leaf oil and not from vanilla beans. Vanilla flavoured food products containing vanillin ex-eugenol cannot be labelled as ‘natural’ because all of the vanilla flavour is not coming from vanilla beans. To make matters worse, almost all of the vanillin ex-eugenol from China is blended with synthetic vanillin ex-lignin as an economic adulteration.”
Daugherty agreed that prices are starting to decrease. “Current selling prices for 2018 crop and carry-over 2017 crop Indonesian vanilla beans are 15-20% lower than their peak selling prices in 2017. The 2018 Indonesian vanilla bean crop has been available in the vanilla consuming markets for the last couple of months,” he explained.
Francois Bernard of Indonesian spices producer Tripper said Indonesian vanilla bean prices have reached USD35 per kilo for immature green beans harvested two months early. Based on a curing ratio of 11 x 1 this would equal USD385/kg without adding any factory overheads, so the actual estimated selling price is around USD450/kg.
“Some collectors are starting offer but encounter a very weak demand,” he added. “Our US customers are stretching their inventory as much as they can, waiting to see how the green campaign of Madagascar will kick-off.”
In Madagascar there are around 150 tonnes of unsold carry over poor quality vanilla beans remaining from the 2017 crop.
“The reason this material is of such poor quality is because it has been stored in vacuum packaging for nine months or more and this material is mostly held by the vanilla bean collectors in Madagascar,” Daugherty added.
Van der Walde said: “There has been a huge amount of vanilla returned to Madagascar due to quality issues this year. Several major exporters are actually retreating mouldy vanilla, trying to save it.”
Discounts on the low quality material
Daugherty noted these 150 tonnes of very bad quality left over from the 2017 crop are being offered at an approximate 20% discount through multiple channels compared with the peak Madagascar vanilla bean selling prices in 2017 and early 2018. “Any of these 150 tonnes that remain unsold will be blended into the upcoming 2018 Madagascar vanilla bean crop,” Daugherty suggested.
He estimated that there are probably less than 50 tonnes of good quality unsold Madagascar vanilla beans from the 2017 vanilla bean crop held by the vanilla exporters and traders.
Daugherty finds that the current selling prices for the good quality Madagascar vanilla beans are only down about 5% from their peak selling prices in 2017 and early 2018.
“This is because there are very little good quality Madagascar vanilla beans remaining unsold and this material will be needed by the industry before the new upcoming 2018 Madagascar vanilla bean crop will become available. Of course, many vanilla bean extractors and users hear about the cheaper prices being offered for the very bad quality Madagascar vanilla beans and try to apply that lower pricing to the good quality Madagascar vanilla beans on offer. Nothing ventured nothing gained I guess. Good luck with that,” he added.
The official green vanilla bean market opened on May 10 on the west coast of Madagascar where about 10% of Madagascar vanilla beans are grown.
“So far, the current asking prices for green vanilla beans by the farmers on the west coast of Madagascar remain high. The official green vanilla bean market in the Sava region, Madagascar's largest vanilla bean growing area, is expected to open on July 15,” Daugherty noted.
Larger crop expected
At this stage, industry sources are projecting a possible 15-20% larger crop in 2018 if official harvest dates for the green vanilla beans are respected. This outcome would obviously also be dependent on normal weather and harvesting and processing conditions.
The European trader cautioned: “Unfortunately, it is impossible to foresee any weather phenomenon – anticipation of harvest, bad preparation, excessive use of green pods, poor yields, etc. – which can weigh heavily on the availability of quality ‘traditional’ vanilla for export.”
He explained that the current situation is that in areas not affected by Enawo, flowering and flower pollination rates are very good. “In areas that had to withstand the effects of the cyclone, the bloom is at least equivalent to 2017 and production will be much better, subject to no adverse climatic incidents over the next two months. In addition, the abundant rainfall recorded at the end of 2017 seems to have given a boost to the lianas, which produced more flowers than expected,” the trader added.
The trader cautioned that if the harvest of green vanilla opens around June 26, as is traditionally the case, no more than 50% of pods available at that date will be mature. “The ideal would be for the season to start in late July or mid-August for mountainous areas,” he urged.
Daugherty remarked: “A larger 2018 Madagascar vanilla bean crop should put some downward pressure on selling prices from last year's highs, but we do not believe that we will see a total price collapse like we did in 2004.”
Van der Walde noted that the only rival origin poised to achieve a significant boost in production this year is Papua New Guinea, which is expected to reach 200-250 tonnes.
Van der Walde suggested that the likely absence of exports from Madagascar between the end of June and October 15 could result in a slight upturn in vanilla prices from this origin. “I do not believe that inventories are so strong to support the market over that period of time, so there are going to be some buyers that are going to be shut out looking for beans,” he warned.
Bernard said he does not expect much change in price on Indonesian vanilla beans until the end of the summer. If there is a decline in price this will not be until late this year when the first exports of Madagascan vanilla reach the US, he predicted.