The Vanilla Market
1. Overview For roughly 8 years, the vanilla market enjoyed a favourable situation, i.e. a slight production surplus (2300 to 2600 tonnes per year) for a market which has changed just a few percent each year and which stands at 2300 tonnes in 2013. The harvests have been abundant and the quality consistent. Prices have become very competitive, reaching historically low levels. Over the last two years however the situation has changed: producer countries other than Madagascar have sharply reduced their production and some have even stopped producing altogether as the prices are too low. Production in Madagascar has been falling for two years due to natural cycles and in 2013 it will probably be the lowest seen in the last 10 or 12 years. At the same time, due to the excessively low prices Madagascar is tending to reduce the "curing" of the pods ready for exportation. The current global production, consumption and stock levels are taking us into a period of low to medium shortage which will begin in 2014 and which could last until 2016, on condition that Madagascar quickly returns to its average production levels seen over the last eight years. Prices are rising continuously although we are not yet in a shortage situation. They have doubled since June 2013 and could multiply three or four-fold over the coming weeks and months compared to their 2012 level (for buyers now tempted to cover their requirements). The shortage and the price rises will reduce consumption but it is difficult to work out at what point supply and demand will once again be balanced. All categories of pods should be affected in addition to the so-called "industrial" pods intended for infusion (ice cream) and those intended for extraction (ice cream, desserts, aromatic compounds, dairy products, biscuits or chocolate, etc.). The total production of so-called "gourmet" vanilla varieties is sharply down but their main use by food professionals and by pastry chefs or cooks allows little scope for substitution, which means that we are likely to see a further sharp increase for this category. The other categories (namely organic and fair trade) will continue to exist and will be more difficult to find with prices rising. 2. Hypothesis - OUTLOOK FOR 2014 Global production in 2013 to supply the 2014 market will be between 1350 and 1550 tonnes. Global stock levels for the entire production/usage chain do not appear to be very long but will probably make it possible to postpone the probability of a shortage until the late first or second quarter of 2014. In view of these factors, the shortage would be between 100 and 400 tonnes at the end of 2014. - OUTLOOK FOR 2015 Madagascar has reported to us that the initial flowering in September has been rated as "good". Making estimates based on these observations is very difficult, although the producers have indicated to us that they hope the likely production for Madagascar for 2014 will be between 1400 and 1500 tonnes. Based on this scenario, global production could be between 1700 and 1900 tonnes in 2014. When we consider that the consumption level could have "mechanically" lost 200 to 300 tonnes over this period (due to the non-availability of merchandise), the shortage in late 2015 would then be between 100 and 200 tonnes. - OUTLOOK FOR 2016 A return to a better production cycle in 2015 and purchase prices which remain encouraging for producers could lead Madagascar and the other countires to produce more. We would then return to a production level of between 1900 and 2100 tonnes with a slight surplus in world stocks by the end of 2016. CONCLUSION We believe that pod prices will remain high or even increase again over a period of a year to a year and a half, but should stabilise well below the maximum prices seen during the previous crisis of 2000/2004. All of the professionals involved in the vanilla industry are finding it necessary to plan on higher prices for vanilla pods and all vanilla extracts, natural vanilla flavourings and natural flavourings using this raw material. The Prova strategy is to encourage clients to maintain their use of pods by proposing very acceptable prices or other flavouring solutions using pods which nevertheless perform well. Looking beyond the crisis, we hope to return to prices which do not hit rock bottom and which remain satisfactory and acceptable for the entire industry, from producers through to users. Montreuil, September 20, 2013 Hervé PRIME General Manager