Madagascar 2: Vanilla prices soar again

by Jeff Gelski
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Not at all plain, the vanilla market has turned volatile again. Five years ago prices for vanilla beans were hovering at about $20 a kilogram. This January, industry sources reported prices above $200 a kilogram. In turn, manufacturers of foods and beverages such as ice cream and cookies should brace for continuing high vanilla flavor prices.

Skip Rosskam, president and chief operating officer of David Michael & Co., Philadelphia, said he is advising his customers to find ways to use less vanilla, which would improve the supply-demand situation.

“Can you imagine somebody who sells vanilla for a living telling his customers that we’re all going to be better off if you use less?” he said. “But it’s true. That is what has to happen. We have to create more supply than there is demand.”

Josephine Lochhead, president of Cook Flavoring Co., Paso Robles, Calif., also gives advice to her customers who buy vanilla flavor for their foods and beverages.

“No. 1 is not to stock up,” she said. “When (the food and beverage companies) see these prices going up, they want to order four times what they normally do, and that just exacerbates the problem. Have patience. Don’t panic.”

The market has even seen higher prices. Vanilla beans went over $500 per kilogram in 2004, said David Vanderwalde, director of Aust & Hachmann, a vanilla bean buyer based in Pointe-Claire, Que., that sells to flavor houses. Growers in other countries besides global leader Madagascar then entered the market, leading to a glut, he said. The market crashed. Prices plunged. Vanilla beans sold for about $20 a kilogram from 2008-10, Mr. Vanderwalde said.

Only Madagascar growing regions could support such low prices for vanilla beans, a labor-intensive crop, Ms. Lochhead said. Cook Flavoring Co. grows its own vanilla beans in South Pacific regions and also buys vanilla beans from Madagascar. Wages in Madagascar run about $1.50 per day while wages in other regions average about $10 per day, she said.

Since vanilla prices are high again, growers in other countries may consider getting back into the vanilla market, but it’s not that easy. After planting vanilla beans, it will take four years to develop a commercial crop, Mr. Rosskam said.

“It’s not a quick fix anywhere,” he said. “It’s not like we can expand production next year.”

David Michael & Co. locked into long-term vanilla bean contracts in 2010, which proved wise. The company bought three years’ worth of inventory in 2010 and then suggested to its customers that they contract with David Michael & Co. for three years, Mr. Rosskam said. After every year, the contracts were rolled over for another year.

David Michael & Co. and the customers who took contracts now are covered through 2016. Those customers are paying about $30 to $50 per fold for David Michael & Co.’s vanilla, Mr. Rosskam said. Without the long-term contracts, and with vanilla beans selling for more than $200 a kilogram in 2016, the price would be more like $120 to $125 per fold, Mr. Rosskam said.

Vanilla milkshakes
Madagascar vanilla beans have the sweet, creamy flavor associated with classic vanilla, according to Nielsen-Massey Vanillas.

Quality is also an issue

While vanilla beans are costing more, quality has become a problem. Quality is best at $20 a kilogram and worst at $600 a kilogram, Ms. Lochhead said.

“There’s always an inverse relationship between price and quality,” she said. “When prices are high, it gives farmers an incentive to pick the beans before they reach maturity. Immature beans lack flavor.”

A practice called vacuum packing is affecting quality as well.

“The recent practice of vacuum packing has had a significant detrimental effect on the quality of the vanilla beans as they attempt to stop the curing process until a later date,” said Craig Nielsen, chief executive officer of Nielsen-Massey Vanillas, Inc., Waukegan, Ill. “Unfortunately, this retards the flavor development within the bean, and that development cannot be made up at a later date. Utilizing this practice means they are asking exorbitant prices for inferior quality beans under today’s market conditions.”

The combination of high vanilla bean prices and poor quality might have food and beverage manufacturers seeking alternatives to pure and natural vanilla flavors. When price reaches a certain limit, companies may opt for synthetic vanillin, Ms. Lochhead said. Synthetic vanillin might work better in baked foods than in ice cream, which is more sensitive, she said.

SLIDESHOW: Strategies for managing vanilla flavor costs

“That pure vanilla flavor is a lot more important and distinguishable in an ice cream product than in a bakery product like a high-temperature cookie that has other ingredients in it,” she said.

In previous periods of high vanilla prices, some food and beverage companies switched to synthetic vanilla such as vanillin to save on costs. They may be less likely to do so in 2016 as more food and beverage companies move toward natural ingredients and “clean” labels, Mr. Rosskam said.

For example, Nestle S.A. in February 2015 said it planned to remove artificial flavors and F.D.A.-certified colors from all of its chocolate candy products. Other companies such as General Mills, Inc. and The Kellogg Co. have followed with their own plans to remove such ingredients.

“They’re making this decision at the worst possible time (for vanilla) because that’s going to create more demand,” Mr. Rosskam said of the move away from synthetic ingredients.

Waiting on this year’s crop

This year’s Madagascar crop may offer some relief to the high prices. A decent vanilla bean crop in Madagascar is about 2,000 tonnes, Mr. Vanderwalde said. The 2015 crop was 1,300 to 1,400 tonnes, he added.

Mr. Nielsen said the 2016 harvest in Madagascar should begin in June or July. The 2016 crop, after being cured, should be ready for shipment about November or December.

“Although this is a time of fluctuation in the vanilla market, it is expected the current situation will be short-lived,” Mr. Nielsen said. “The flowering for (the 2016 crop) was good, and prices may start to drop in the fourth quarter of 2016.”

Ms. Lochhead said that, depending on the 2016 Madagascar crop, prices might start leveling later this year.

Mr. Vanderwalde said the vanilla market could be a tough one for 6 to 12 months. He said eventually the market will soften and prices will fall.

“When they fall, they tend to fall fast,” he said.

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READER COMMENTS (11)

By Casper Jim 8/28/2017 5:50:54 PM
I wanted to sell 6 Kilos of A Grade Vanilla Beans from Papua New Guinea. Is there any company in Australia that I can sell to. I would appreciate if someone can give me the name of the company who buys vanilla in Australia. Regards Jim

By Edna Cooper 4/5/2017 11:39:54 AM
Costco is stopping production of their amazing vanilla ice cream and have stopped selling vanilla extract. It used to sell for under $15 for 16 oz. Now only available from 3rd party vendors for $42.00 and up for the same bottle.

By sandra compton 3/16/2017 2:48:43 PM
thank you very much for this article. It is very helpful and informative. My son operates a baking business and this was very helpful as we noticed the price has soared.

By MATHAN 2/25/2017 5:25:47 AM
I wanted to sell some of my vanilla beans to you so how couldI get to you?

By MATHAN 2/23/2017 10:19:16 PM
I have some vanilla beans and need to sell so how could I do these? Please may you help me make my way to your market

By SHAHINE MOHAMED RAMAHATANA 12/18/2016 9:28:39 PM
Thank you for the information. I am from Madagascar and i would like to extend the vanilla and clove business to other country as china and US. Please contact me if anyone is interested.

By Madhu 10/28/2016 2:06:50 AM
Like

By Raps Pasi 10/6/2016 5:55:18 PM
option from png vanilla price must increase as we do supply quality beans and also the soil foundation is very fertilized as the price increase will definately meet the rquired amount of tonnes to supply..

By Solomon Jayaraj 10/5/2016 12:51:41 AM
Thanks for the information. I'd like to have more information about the Indian market for vanilla. I am a teacher-turned farmer. We used to grow vanilla on the farm in the highranges of Kerala, South India. When the prices fell to about INR.100 ($1=Rs.65),we got discouraged. Thinking of planting vanilla again! Thanks again. Solomon

By Mohamed Fazal Wazir 7/25/2016 9:02:30 AM
dear sir /madam i want to know 100g world best vanilla beens price

By Dr A W Miller 4/23/2016 8:08:58 AM
Pity there was no mention of the fact that "nature identical" vanilla flavour is cheap and has been used for many years on the large scale. It comes from the processing of wood into paper.