As the global vanilla market officially transitions from short supply, poor quality and record high prices to sufficient supply, better quality and slightly lower prices, the possibility of further price declines looms large while the likelihood of a market collapse seems remote, at least for 2019.  In 2004 at the end of the last vanilla crisis, prices fell almost 90% over a twelve-month period, and fell a further 60% in the seven years that followed. Could a similar decline occur now that the most recent crisis has abated? For now, we are doubtful as global demand remains weak. However, a smaller than predicted crop in Madagascar may create some short-term supply headaches. Furthermore, although diminished, globally there is a far greater broad-based demand for natural vanilla beans than there was in 2004. Most major industrial users of vanilla have assumed the same strategy, keeping inventories as low as possible and buying over the short and medium term.  Although vanilla bean prices fell significantly from levels that eclipsed USD 600.00/kg in 2018, we are still at what would be considered historically high prices with ample downward exposure.  There is still some unsold high-quality vanilla on the ground in Madagascar from the 2018 crop as the harvest for 2019 commences in the northern part of the country. There are hold outs in other origins as well. In the months ahead we expect efforts will be made to liquidate these stocks as vanilla harvests progress in the growing regions. At this point, after a relatively calm cyclone season we have a very hard time seeing any path to higher prices.

Herewith is our opinion on what we can expect from the various vanilla major vanilla growing regions over the next 6 months or so where we are most active.

Papua New Guinea – work in progress

PNG continues to gain traction on the global vanilla stage. As prices fall and credit becomes available on the ground, we expect the playing field amongst exporters to level somewhat. There is still only one market dominant supplier in this region. We estimate PNG will produce between 150 – 200mt of vanilla beans in 2019, slightly lower than 2018. This would include vanilla exported to Indonesia, usually under vacuum pack and only partially cured. There the vanilla is finished and then re-exported sometimes as vanilla of Indonesian origin. This is unfortunate and confusing for buyers as it negates any standards for quality. PNG vanilla finished in Indonesia although viable, is very different than PNG vanilla from origin. Keeping green vanilla on the vines long enough to mature properly has also proven to be a challenge.  Unfortunately, mold issues and unstable, immature vanilla beans are still too common. We are optimistic that the quality of PNG vanilla will improve further into 2019. There is a real opportunity for PNG to secure a long-term foothold in both the industrial and food service sectors if they can take better control of their exports and quality standards.  As vanilla prices continue to fall PNG will have to work hard to hold on to the market-share they have captured over the past 5 years. Otherwise the brand will quickly be abandoned in favor of other origins as was the case after the last crisis.

Indonesia – a little of this a little of that

Indonesia has surprised somewhat with better than expected qualities and bigger volumes than originally announced. Part of this could be attributed to PNG vanilla imports alluded to earlier. Nevertheless, at this point, and it is still very early, we see 100 – 125mt possible from within Indonesia with an estimated 40- 50mt brought over from PNG in 2019. Like all origins there has been extensive planting of vanilla in Indonesia and by 2020 we expect crop yields to increase significantly.  The majority of what we see on the market in terms of quality is lower grade vanilla with some pockets of hi-vanillin and gourmet or foodservice quality available. As long as vanilla prices remain attractive from a grower’s point of view, we expect Indonesia to continue planting and growing vanilla, helping to diversify the supply chain.

Uganda – slow progress

Vanilla from Uganda continues to show signs of improvement in terms of quality but many obstacles remain. The government seems committed to helping the industry, but thus far tangible results on the ground have yet to materialize. Currently the first harvest is under way and green vanilla prices have started lower than last season and the market is stable. This harvest is the smaller of the two annual crops and will probably yield 30 – 40mt. The second harvest in the fall of 2019 is expected to be significantly larger. We are not seeing the early picking of previous campaigns so yields and quality are expected to improve. Again, it is very early but we would expect a total annual production from Uganda of about 100 -125mt depending on crop maturity and favorable curing ratios. Vanilla production in Uganda is expanding through three distinct regions.  Several major industrial end users have taken a keen interest in Ugandan vanilla and are actively supporting the industry on the ground.

After all, this is a region that produces the same botanical species that is grown in Madagascar and has the capacity to easily produce 250 – 300mt annually. This would go a long way to restoring the global competitive balance for vanilla which is sorely lacking.

Comoros trudging along

The Comoros experienced the same phenomena of late flowering as Madagascar. The crop will not be as abundant as anticipated and the crop size will certainly not exceed 100mt. However, given the regions tight control of harvest dates we do not expect quality to be adversely affected. Most of the production is high yielding bourbon industrial or gourmet grade vanilla beans. Only a very small percentage of low- grade vanilla is produced. The Comoros is an attractive alternative to Madagascar for those seeking high yielding 100% authentic bourbon vanilla beans.

Madagascar – the beginning of the end

After several consecutive harvests that yielded sub-standard quality vanilla beans, the 2018 Madagascar crop recovered to more typical levels of quality. Certainly not a vintage crop, but a definite improvement especially in terms of vanillin content and stability. Having grown so accustomed to poor quality vanilla industrial vanilla buyers reacted in a curious manner. In fact, once it was discovered that the lower grade beans were yielding the same vanillin levels as the high-grade beans from the previous crops, that is where buyers focused their attention. As a result, today there remains little low-grade availability while there still remains a surplus of several hundred mt of high-grade Madagascar vanilla. Despite a fairly significant improvement in quality and drop in price there was no noticeable rebound in demand for vanilla. If anything, there was further erosion. In our opinion it will take a far greater price decrease before world-wide demand recovers, in particular for Madagascar vanilla.

We estimate the 2018 Madagascar crop yield to have been around 1600 – 1800 mt with about 1200 mt exported by the end of March according to government statistics. The greater yield was due mostly to the maturity of green vanilla and improved curing ratios. This also accounted for increased volume of high-grade beans vs. low-grade.  There was less pre-financing of the 2018 crop and a reduced demand (thankfully) for quick cured vanilla. Both of these factors contributed immensely to improved qualities. Currently we believe there to be at least 100 – 200mt of vanilla still unsold from the 2018 crop.

The 2019 crop is shaping up somewhat differently as flowering was quite late and not as abundant as expected in most regions. Although we do not expect the quality disaster that some have predicted, it will be a challenge for Madagascar to maintain the same quality in 2019 as 2018. The new government appears to be more pro-active as far as vanilla is concerned. Currently they are implementing measures aimed at protecting the 2019 crop. This includes a June 1st cut-off date for exports of undeclared stocks and apparently strict harvesting dates for the various regions. The single biggest factor affecting the quality and yield of any vanilla crop is green bean maturity or lack thereof. These measures are intended to discourage theft, quick curing of vanilla, pre-financing and speculation.  It remains to be seen how effective they will be. We expect the commencement of exports for the 2019 crop to be mid to end October.

It is far too early to estimate the crop size for 2019. A lot will depend on the ability of the government to enforce the aforementioned measures which could easily improve crop yield and quality. However, we can say with relative certainty that crop size in 2019 will be smaller than 2018.

Other Regions – opportunities missed

Even with four years of rising and record setting vanilla prices growing regions such as India, Mexico and French Polynesia were not able to increase their production of vanilla beans. We know very little about Indian vanilla production but for years we have been hearing about an imminent explosion in production that has never materialized. Domestic consumption may be part of the reason but the region still remains a mystery to us as far as vanilla production is concerned.

French Polynesian vanilla production has fallen as the primary exporters continue to collude in order to keep prices well above Madagascar levels thus discouraging any market expansion and encouraging buyers to seek alternatives such as PNG Tahitian type quality.

Mexican vanilla production is less than 10mt and sadly appears to be in its death throes with no significant increases and very limited availability despite three years of favorable prices.

Conclusion

Although we see many positive signs emerging in the global vanilla trade the market still has a long way to go before full recovery.

New vanilla vines planted over the past 3-4 years will start to yield in 2019 and even more so in 2020 when world-wide vanilla production could increase dramatically. Madagascar will probably see a decline in quality and production for 2019 but we do not expect it to be anywhere near as severe as many are predicting. A recent market report circulating in the industry suggests that vanillin contents for the 2019 Madagascar crop would not exceed .4% and that green vanilla theft was rampant and remaining stocks from 2018 were already sold.  Very alarmist in our opinion.  This is the traditional “silly” period in Madagascar where every manner of dis-information circulates in the market. It is perfectly normal that farmers and collectors want to see prices remain high. The reality is that a clear and concise assessment of any vanilla crop cannot be made until the harvest is complete and curing has started. In Madagascar this will not be before August/September at the earliest. Early prices for green vanilla in the northern region of Ambanja are extremely high considering the actual state of the market. These should not be taken as a barometer of where prices are going as the area accounts for only about 5% of the total crop. There could be any number of factors driving these prices.

The realization that allowing the vanilla to fully mature means better yields and improved quality seems to be taking hold in all origins. The harvesting of immature vanilla is still a serious problem, but not to the extent of previous years.

The government of Madagascar still allows for the quick curing of vanilla and extraction of green vanilla. We are hopeful they will soon move to restrict these practices which are extremely detrimental to the communities throughout the vanilla region as we have repeatedly stated in previous reports.  Early reports suggest that there will be an increase in the demand for quick curing. A new facility is being installed at Antsohihy 200km from Ambanja. This is bad news for the vanilla communities of Madagascar.

The demand for exhausted or spent vanilla, (vanilla waste after extraction), and vanilla seeds sifted from this material has exploded over the last 12 months. Prices for what is essentially a waste product with absolutely no flavor characteristics have increased many times over. We saw the same trend during the last vanilla crisis. Some food manufacturers will add these products to their formulation simply so the words vanilla beans or natural vanilla can remain on the ingredient declaration. Ultimately the product will be flavored with natural vanillin or similar products which are not derived from vanilla beans.

Although clearly deceptive for the consumer this is an indication that some food manufacturers are still willing to bend the rules as long as vanilla prices remain prohibitively high.

Although the global vanilla market may still experience some unexpected speed bumps the trend is undeniably moving towards lower prices over the long run.

Despite the smaller than expected crop in Madagascar other growing regions will, for the most part, produce well in 2019 and by 2020 we could easily see a significant surplus in world-wide vanilla production.

Buyers should maintain a disciplined approach and ignore the raft of rumors which are bound to circulate in the coming months. Even at current levels, vanilla prices are not sustainable over the long run. In order to avoid a potential catastrophic collapse in 2020, we believe prices must correct further in 2019. Only buyers have the power to steer the market in this direction.

Aust & Hachmann (Canada) Ltd