Marcel Goldenberg, Mintec : Vanilla prices will fall further in the next three months

The vanilla 2020/21 crop is opening up with a large world production and lower demand, leading the way to a massive drop in prices. Madagascar tried to postpone the effect by issuing late February a government set minimum price for export. As it is by far the leading world vanilla actor, all other producing countries are waiting to see what will be the world price for this crop year. According to Mintec Vanilla Survey, 73% of participants have indicated they expect prices for vanilla to fall in the coming three months, says to CommodAfrica Marcel Goldenberg, Head of Proprietary Pricing at the British provider of global food princing data worldwide and explains why.

What is your general analysis on the 2019 Madagascar vanilla crop?

The crop came in at about 1,400-1,500 metric tons (t) which was significantly lower than previous crops and thus related in the Mintec Benchmark Price for Gourmet Grade Vanilla FOB Madagascar to be trading in the $ 550-600 per kilo (kg) range at the beginning of the 2019 harvesting season. However, interestingly, as the season continued and the year 2019 came to an end with still significant stocks left in the country, prices collapsed to as low as $ 310 per kg.

The reason for this was twofold : first, lower overall demand for real vanilla as more people started sourcing synthetic vanilla when prices were in the high $ 500/kg range ; second, because other vanilla producing regions like Papua New Guinea (PNG), Indonesia and Tahiti produced larger crops in 2019. While Madagascar is seen as the ‘gold standard’ for vanilla, when you can suddenly save hundreds of thousands of dollars per purchase, importers start considering other vanilla producing regions very seriously.

Now, of course, when the price for vanilla drops by almost 50% and you have a country that is heavily dependent on the vanilla industry, this becomes an issue. For reference: vanilla makes up about 10% of Madagascar’s GDP. So at the beginning of 2020, the Madagascar government implemented a minimum export price of $ 350/kg for all types of vanilla, which has been in place since.

Why didn’t Madagascar introduce a different price for the different qualities of vanilla ?

There are several schools of thought behind this, but the most commonly discussed in the industry is that the government expected that by setting a minimum price the market would start to regulate itself and that only the lowest quality vanilla product would trade at the minimum price and that higher quality products would continue to trade at a premium to this level. However, the opposite happened, because the price for the highest quality ‘gourmet grade’ was already trading below this minimum level, no buyer was prepared to pay more than $ 350/kg. Ultimately, this meant that the lowest quality vanilla was being sold at the same price as the highest quality.

At Mintec, we have just recently launched a monthly Mintec Vanilla Survey and the survey also touched upon the question of the minimum price and it was interesting to see that 44% of all participants said they would favour no minimum price at all, closely followed by 35% that said a minimum price of $250/kg would be better.

What is the difference between the prices in Madagascar and the other countries ?

Vanilla from Madagascar tends to trade higher than vanilla from other producing regions due to Madagascans being able to achieve a better consistency and thus quality in their vanilla. We are currently hearing Indonesian vanilla prices to trade around $35/kg below Madagascan vanilla, but it is our view that these prices are also being held artificially high due the minimum price in Madagascar. Exporters from Indonesia and other exporting countries are saying that ‘even at these prices we are still below the Madagascan prices, so we do not need to sell cheaper.’

Over the past couple of years, industries lowered their demand for natural vanilla because they switched to synthetic vanilla as natural vanilla was too expensive. But now that natural vanilla prices are going down, will they switch back ?

This is an interesting question and one that is not that easy to answer as it takes time for procurement department and flavouring companies to switch their strategies and recipes. Let’s speak about vanilla ice cream for example. Changing the ingredients for this will not happen overnight as stocks have been bought and contracts have been signed. Adjusting this to ‘real’ vanilla will take time and cost money and to add to this, in an ice cream few people are able to taste the difference between synthetic and ‘real’ vanilla anyway. So, from speaking to the industry, there are certain areas where ‘real’ vanilla is unlikely to come back.

Having said this, especially now with Coronavirus having impacted the food and restaurant landscape, there will be some restaurants and food manufacturers that are going to pay even more attention to the quality they are offering and you may see companies that previously didn’t care about which kind of vanilla they use, now use more ‘real’ vanilla – and the lower prices will certainly help make this decision. In fact, the drive to more sustainably sources ingredients and ‘certified’ products such as ‘Organic’ and ‘Fairtrade’ is something we have noticed to be one of the main trends through COVID-19.   

What is your analysis for the months coming ? Will producers go for other crops ? Will some actors move out ? Is the structure of the market in Madagascar going to change because of the lower prices ?

Vanilla is one of these interesting crops where a lower price can often mean higher quality. At prices of around $ 500/kg, many people are trying to profit from the huge margins that can be made on the product and this often attracts people that have not been in the industry for very long and thus have a limited knowledge of curing vanilla. In fact, curing vanilla is a very delicate process and requires a lot of experience and knowledge as each flower needs to be pollinated by hand at exactly the right time. So, as prices for vanilla decrease, so do profits and people that entered the market ‘to make a quick buck’ will be forced out leaving the more traditional and experienced players on the market. This means that your chances of purchasing a bad batch decrease and quality increases despite prices decreasing.

Referring to the Mintec Vanilla Survey, 73% of participants have indicated they expect prices for vanilla to fall in the coming three months and that globally there are still around 400 mt of vanilla left unsold from the 2019 crop. On top of this, the 2020 crop, for which the green bean season has started in some parts of Madagascar in May, is expected to be around 2,000 mt which is 25% larger than the 2019 crop. Therefore, I feel that all signs are pointing to the market continuing to be oversupplied. Though, of course, we need to keep watching what the Madagascan government is doing in terms of the minimum price: a free market would indicate prices to fall, a minimum price would indicate unsold stocks to grow.