As with most commodities, the vanilla market goes through repetitive cycles, meaning that operators have to manage long or short positions. Long positions are generally speculative, involving an expectation of consumption resuming and prices going up. This is the case for vanilla today. The question then is: when will the market resume its upward trend? The answer is: probably today.
Due to low prices, vanilla consumption has resumed its growth in recent years. That upswing came not in traditional niches such as premium ice creams, nutraceuticals and (occasionally) sodas, but rather via expansion into new markets and countries, including China. All told, the market bought 3,500 tons of vanilla in 2007 at prices ranging from $15 to $25. These figures are partially the result of anticipatory buying, such as making purchase for the first quarter of 2008 (or, in some cases, as late as 2009) in mid-2007.
Estimated consumption figures are as follows: 1,900 tons in North America; 500 tons in Europe; 120 tons in Japan; and 150 tons elsewhere. Consumption in the United States was destined for industrial extraction and a vigorous family extract business. Europe, like Japan, is still very much in a “vanilla de bouche” mode, taking a gourmet approach to the commodity, which puts the bean in a blister and keeps cooks, pâtissiers, glaciers and the like pretty active. That accounts for a great deal of lot of vanilla. One might doubt these quantities if, year after year, the import figures were not confirming that the world is consuming some 2,700 tons of vanilla a year—and not just home-grown stocks.
Issues With African Supply
And here comes the dramatic part: Farmers in Madagascar, Uganda and elsewhere are getting $1/kg or $2/kg for growing and preparing the beans (when they do so). This means roughly a dollar or so a day, the lowest revenues in the world. People are asking: what has gone wrong? Given the prices these farmers are earning, over the last two years they have stopped taking care of their plantations. The farmers did pollinate, but have not cleaned the poles and vines afterward. As a result, Phytophtera, a virosis, has spread dramatically on at least a third of Malagasy vanilla vines. This, coupled with the consequences of glut years that necessitate years during which the plants must rest a bit, means that Madagascar may offer a mere 800 tons of vanilla in 2008. This will come on top of some 350 tons from the mix of Indonesia and PNG product, under 200 tons from Uganda, 100 tons from India, and some 60 tons from Comoros—a total of less than 2,000 tons.
These amounts will be added to the few hundred tons still awaiting customers While we may have a bullish market this year, prices are likely to rise (at least) next year. By then, the market deficit may reach between 1,000 and 2,000 tons. And with end users admitting that they would not see a difference at $60/kg, the industry may have such vanilla trading prices by the end of 2009. Let us only hope it stays within these reasonable limits and that trigger-happy traders do not start another suicidal war like a few years ago.