Another Storm Raging in the Vanilla Market

Spend Matters welcomes this guest post from Nick Peksa and Jara Zicha, of Mintec.

Vanilla is a unique spice. Its origins can be traced back to Central America, but benefiting from a favorably warm and humid climate, Madagascar has become the dominant producer, responsible for over 70% of global production. Vanilla is also produced in smaller quantities in Indonesia, India, Uganda and Mexico. This year, the world market is experiencing some significant supply shortages. To put this into context, global demand is 3,500 tonnes and global production will be around 2,400 tonnes. There is no more vanilla to buy!

The last time we saw these kinds of supply conditions was back in in early 2002, when production in Madagascar was severely damaged by a cyclone, resulting in global vanilla shortages. This led to prices rising dramatically to a peak of $260 per kg in 2003. The market took around four years to recover, as newly planted vanilla needed time to mature to be fully productive.

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While there has not been an actual storm or cyclone in the market more recently, vanilla prices are certainly at uncomfortable levels: In the last 12 months, they have more than doubled. After a few years of poor-to-average quality crops in Madagascar, the market was depending on a good crop in 2015. Sadly, this was not realized and the Madagascar crop came up very short on both quality and quantity: around 1,300 tonnes were produced, about 40% less than a standard year.

Major buyers in the marketplace realized this early and covered their shipments, as very weak flowering was visible in September 2014. So, if you don’t have your vanilla now, you will have to pay.

The good news is that for next year the initial estimates for the new crop are favorable, putting the production above 2,000 tonnes again. Prices will take a while to recover and they should remain firm for a time being. Unlike in the past, many food manufacturers are now committed to using natural ingredients in their food products, therefore limiting the opportunity to substitute with more widely available synthetic vanillin when the prices for natural vanilla are high.

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