This report comes from Aust and Hachmann, Canada and is based on the North American Vanilla Bean Importer’s
Association (NAVBIA) report. I am adding to this report the latest information on Mexican beans.
Mexico had a disastrous year in 2011 due to extreme heat and drought, and had 10% of their normal crop. 2012 was far less hot and there was ample rainfall. Unfortunately, the plants were so stressed from the previous year that the crop was again 10% of normal. There will be very few beans coming from Mexico this year. Hopefully there will be enough to produce extracts, but at this time we simply don’t know what to expect. [PR]
VANILLA MARKET REPORT NO. 41 – DECEMBER 2012
As 2012 draws to a close, it is apparent that the worldwide market for vanilla beans has finally started to recover after more than 6 years of oversupply and price stagnation. We are hopeful the recovery will be long term and sustained in order to reverse the current trend of diminishing production and quality.
Unsustainable prices and weak demand have pushed many prominent producers of vanilla such as Indonesia and India out of the market. As a result, Madagascar is the dominate global vanilla producer once again; however, if the trend of higher prices continues over the long term, we believe vanilla production from secondary origins will eventually recover. Although we are quite convinced the “buyers” market of the past six years is over, the exact course of the immediate future is difficult to plot.Prices for vanilla beans in Madagascar have increased by as much as 50% over the last six months and demand remains strong. Despite what may seem like a drastic increase,historically speaking, vanilla prices are still very low. Farmers, Collectors and Exporters alike are emboldened and they will drive the market going forward. Our outlook for the producing markets is as follows.
Indonesia and Papua New Guinea
For several years now vanilla production in Indonesia has fluctuated between 100 and 150mt well below historic levels of the past. Although higher grade vanilla can still be found, the majority of production is focused on early picks (EP quality) and grade 3 type. There is a stubborn carry over inventory already several years old in the hands of speculators that remains unsold, however from all reports the qualities are very poor. In the short term we do not expect any changes in vanilla production from Indonesia.
In fact we feel that world vanilla prices would have to increase further for a sustained period of time before Indonesian farmers return to the market. The commitment to farm vanilla and risks involved are too great in terms of time and costto simply jump back in at the first signs of recovery. Furthermore many vanilla farmers have increased their plantings of more lucrative crops such as coffee, cloves and pepper. Therefore we do not anticipate any significant change for Indonesian vanilla production for 2013.
The situation is Papua New Guinea is far worse with production at near zero levels for several years now. However since vanilla farming is less structured than in other growing areas most vanilla vines remain planted and in good health. PNG conceivably could be back in the market relatively quickly however the impact would be felt mostly in the food service and gourmet market as industrial demand for PNG vanilla has always been very limited.
Higher prices for vanilla will help production in Uganda in our opinion. The Ugandan vanilla market has suffered terribly over the past five years as many buyers returned to Madagascar vanilla when Uganda could no longer discount their prices. Further aggravating the market in Uganda was an attempt by a major flavor manufacturer to stimulate the vanilla trade in Uganda by way of a well-intentioned(but ill- advised subsidy in our opinion) given by a Danish governmental organization similar to USAID called Danida. Traditional curing practices were abandoned in favor of a more industrialized approach which negatively impacted both the quality and quantity of the Ugandan vanilla crop. This created a virtual monopoly over the market which thankfully seems to be finally coming to an end with the advent of higher prices. This will allow farmers more options when it comes to selling their vanilla.
It will take some time before Uganda can reclaim its rightful share of the world wide vanilla market. Nevertheless we expect to see improved production in 2013 with volume possibly reaching 140 – 150mt from both crops.
The 2011 crop finished with a flurry of buying in the 1st and 2nd quarter of 2012 leaving a gap in supply by mid-2012. This resulted in early season speculation on prices in the 3rd quarter as the 2012 crop came to market. The market has continued to rise since. There are several factors in play here:
- Surplus inventories have diminished and there is strong pent up demand in the market.
- The weather was very poor in the Sava region in August and September which has slowed the evolution of the 2012 crop and impacted flowering for 2013.
- A large percentage of the crop has been put under vacuum pack. This year we estimate over 60%. This practice is having a major impact on several facets in the market.
- Initial flowering for the 2013 crop has been weak although secondary flowering appears much stronger.
- There is more liquidity in the market than in previous seasons.
- Crop will probably come in on the lighter side of estimates, or around 1400 – 1500mt.
- Many Exporters, Importers and even end users are in “low inventory” positions.
- Madagascar has virtually no global competition for its vanilla.
Although we see a possibility of a short term pull back in the price of black or gourmet vanilla, red vanilla, or what is known in the trade as “type U.S.” is short in supply and herein lies the danger.
We believe even if Madagascar produced a bumper crop in 2013 we doubt it would be enough to satisfy over all global demand.Another challenge for buyers stemming from the 2012 crop will be quality. The phenomena of vacuum packing is now affecting the majority of the crop and we are hopeful this practice will diminish with higher prices in the future. As we have mentioned in previous reports, vacuum packing fresh vanilla is a way to try and keep the vanilla at the required moisture levels so that a greater percentage of beans can be sold as Gourmet/Black/European type vanilla. All of these qualities command a significantly higher price than standard extraction grades although the spread is smaller this season than in previous. With a majority of vanilla now being vacuum packed, sometimes as little as 2 weeks after being harvested, the dynamic of the curing and processing has changed.Exporters have no choice but to muddle through the vacuum packed lots to try and determine the best qualities. This involves much more drying and processing on their parts. Enormous amounts of additional time and resources are required on the part of the exporter in order to properly classify vacuum packed vanilla as it is received only “partially cured”. This increases costs and slows the evolution of the market to a crawl. Even at the end of the process qualities are not up to standard, with lower than normal vanillin contents, particularly with regard to the Grade 1 whole (non-split) extraction grade beans.
Finally, with respect to the 2013 crop it appears the later stages of flowering have been much more productive than earlier in September and October. Although a positive sign, it does signify a late crop for 2013 and with that comes early picking and more quality issues. In our opinion it is very unlikely the crop size for 2013 will exceed 2012.
Although many challenges remain within the vanilla trade we are hopeful the current price recovery will take hold over the long term. We believe in order to improve qualities and increase production a sustained recovery is required. Even at current price levels vanilla is still very reasonable and we see little risk in covering requirements as far forward as possible. From a sustainability standpoint, it is a fact that the higher prices are benefiting vanilla farmers directly. This is welcome news to those in the industry (including our company) who felt that vanilla prices had fallen to dangerously low levels. So low in fact that vanilla farmers could not provide for their families.
We believe a long term bullish trend is the only path to better quality at origin, in particular Madagascar. It is also essential to the recovery of other vanilla producing regions. With time buyers would once again have a variety of vanilla origins and qualities to choose from while at the same time reducing their dependence on Madagascar.
AUST & HACHMANN (CANADA) LTD/LTEE