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Sky falls on the vanilla
trade
By Tony Sitathan
The
vanilla bean, considered the most expensive agricultural
commodity after saffron, has been experiencing a
roller-coaster ride lately, with international prices
for the bean having bottomed out to record lows from the
record highs reached in early 2003.
International spot prices started to peak early
last year after a devastating cyclone in 2000 and
political crisis in 2002 stalled production in
Madagascar, the world's leading vanilla bean grower.
Because of the scarcity, prices for the beans were
quoted as high as US$230 per kilogram in 2003.
This year, however, prices began to ease due to
a bumper vanilla bean harvest in Madagascar, before
collapsing to as low as $30 per kilogram. The outlook
appears even more bleak for farmers in places such as
India and Indonesia, with production in Madagascar
expected to triple from from 500 tonnes in 2003 to
around 1,500 tonnes this year.
It's a rags to
riches tale for some commercial farmers such as Bugi
Hendrawan from Makassar, Indonesia. He spotted the
increase in the vanilla bean prices as early as the
middle of 2002. "I anticipated a price rise after the
bad crop in Africa for 2001. Instead of just increasing
the yield of my crop and increasing the area of
cultivation, which is a laborious process, I decided to
venture into Irian Jaya [a province in west Indonesia]
and start buying cured vanilla beans that came from
Papua New Guinea and other parts of Irian Jaya. I almost
doubled my investment in less than two months, trading
and selling to buyers in Surabaya and other collection
centers in Indonesia," he said.
Hendrawan was
richly rewarded for his speculative instincts. With he
profits, he bought three luxury cars and two large
houses in prime residential districts in Makassar, the
capital of South Sulawesi. Like many in the vanilla
business, he never anticipated the vanilla market to
sour. "I kept buying the vanilla beans thinking each
time that prices would increase in my next sale, but
prices never really picked up. In the end I was left
with almost 10 tons of vanilla beans and dropping
prices. I was forced to sell at a loss of close to $35
per kilogram," he added.
Hendrawan lost more
than $400,000, his BMW sedan and one of the houses.
Despite the mauling, he came out of the trading fiasco
with an overall net gain with his previous earnings. He
thanks his lucky stars that he got out of the industry
before the real price slump came in the later half of
this year.
Others, such as the International
Trading Company in Singapore, which has been trading in
vanilla and other dry commodities for several years,
have not been so lucky. The company was forced to close
after its losses from trading in vanilla beans dragged
the company into bankruptcy. S Narayanamurthy from Laxmi
Enterprises in India is another victim of the volatile
bean trade. "My hopes were dashed when the export prices
of grade-A vanilla beans that are farmed in India
started slipping from a high of $125 to less than $40
per kilogram. Since I have more grade-B vanilla beans, I
am forced to combine grades A and B to sell them at a
discount to my buyer in the United States," he said.
The story of the vanilla bean and its popularity
as a commercial cash crop has come about only in the
past two decades, though the bean was traded much
earlier. The vanilla bean or pod is actually the fruit
of an orchid plant native to Central America. It was
first discovered by the Aztecs almost 1,500 years ago
and was used for flavoring their precious royal drink
Xocolatl, a heady concoction of cocoa beans, black
vanilla seeds and honey. The drink was considered an
aphrodisiac by the Aztecs. Now the vanilla bean is used
widely in chocolate, confections, pastries, syrups and
ice cream and as a flavoring agent for the ubiquitous
Coca-Cola and Absolut Vodka, distilled in Sweden. The
vanilla bean is also prized for its rich, flowery scent,
which has been used as an extract by some of the largest
perfumery houses in the world and is widely used by the
cosmetic and tobacco industries.
World
consumption of vanilla beans is estimated to be around
2,000-2,500 tons annually. The US consumes more than
half the total imports while Europe, Japan and Australia
are secondary markets. Madagascar in Africa is the
largest producer of vanilla beans while Indonesia is the
second largest. Countries such as India and China are
only now seeing the benefits of switching over to the
vanilla bean, which is seen as a labor intensive and
high-yielding cash crop. The production in India last
year was around 75 tonnes of cured beans, while it is
estimated to be around 100 tonnes this year.
There are two main varieties of vanilla beans.
The planifolia variety is also called bourbon in Africa,
Mexico and Indonesia while the tahitensis variety is
found in the Oceania region, including Tonga, Tahiti and
Papua New Guinea, and is taking root as a commercial
crop, replacing cashew nuts and other cash crops in
India since 2002. The planifolia variety commands a
higher international price due to the higher
concentration of vanillin content found in the beans and
is favored by certain large markets internationally,
especially the US and Japan while the tahitensis variety
is preferred by selective countries in the European
Union.
The current drop in prices of the vanilla
bean is caused by an oversupply in the region. When
African countries including Madagascar, Seychelles,
Comoros and Reunion Island - major producers of the crop
(almost 70% of the world's production) - suffered a
major drop in production after being hit by flash floods
in 2001, the resulting shortage of vanilla and its
popularity as an organic flavoring agent caused a bull
run in international prices. That triggered more farmers
to switch over to planting a vanilla crop, which matures
within three years. With the harvesting of a bumper
yield in Africa and Indonesia this year, prices have
gone soft to record lows. This is creating panic among
smaller farmers, who are dumping the crop on larger
farmers and traders with the ability to hold onto the
crop until prices move upward.
But will prices
ever go back to pre-crisis levels? With the high prices
previously commanded in the market, many end-users
switched over from natural, organically produced vanilla
beans to artificial flavors that are easier to produce
and cost only a fraction of the natural beans. However,
large international flavoring houses such as Mark and
McCormack and Nielsen-Massey Vanillas Inc are not
perturbed by the use of artificial flavors as they point
out that there is no real substitute for well-cured
natural vanilla beans.
Patricia Rain, owner of
the Vanilla Company in the US, author of several
internationally acclaimed vanilla books and anointed the
"Vanilla Queen", or spokesperson for the vanilla
industry, predicted the imminent hard times. In an
exclusive interview with Asia Times Online, she pointed
out that the big traders aren't buying now as they don't
want to be overstocked. "Soon, there will be farmers
desperate to move their vanilla. Also, because of the
former high prices for vanilla, the demand has dropped
by 35%. We need to get consumers and industrial users
purchasing more natural vanilla in order to keep farmers
from destitution."
The absence of international
arbitrary price exchange rules or regulatory bodies -
unlike other cash crops - to control the prices of
vanilla beans is another cause for the slump in prices.
"Currently, there are no controls over the industry
other than those required by the Food and Drug
Administration [FDA] with regard to labels and contents
in extracts. There is no commodity exchange regulating
vanilla," Rain said. "Also, since vanilla is grown
outside the US, there is no congressional controls or
boards that promote and market vanilla. The prices are
set by supply and demand forces and a dozen or so people
with deep pockets who buy vanilla."
Rain's
vision of seeing free and fair trade in the vanilla
industry and having some kind of a marketing program in
place to arrest the problem of falling prices in light
of overproduction is commendable. However, as the world
waits with bated breath for a solution, there will be
many more farmers and traders who will be hit by the
falling vanilla prices until prices once again escalate
to previous market levels. Until that happens, it looks
like the sky has indeed fallen on the vanilla trade.
(Copyright 2004 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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