Vanilla Global Market Report – June 2023

Based on our research on the ground and our direct connection with the farmers, we can see that the situation in Madagascar is tense. Farmers are stuck between desperation and unrest. Like the rest of the market, they are also awaiting further communication from the government while they are sitting on large unsold prepared stock from last year, as well as an upcoming green harvest in a few weeks. The opening of the green campaign will be a critical time for all involved. 

The situation overseas is also dire, with some major buyers holding significant stock with prices falling. 

All factors seem to be in place for a vanilla market crash as experienced in 2003-2004: large unsold stock inside and outside of Madagascar, a large upcoming crop, low demand and economic crisis looming in the West. 

Will history repeat? We are not convinced that the writing is on the wall for several reasons. 

First, it is clear that the Madagascar government is trying to learn from lessons of the past and is preparing to intervene on the market, as illustrated by the CNV and the newly created CVM.  We can already see that with no control on prices, there is very little demand for green in Ambanja where the season is already open. This tells us that we should expect low prices when the green market opens in the SAVA. The government could implement new policies, in line with the market while also protecting the livelihood of farmers. A minimum export price commensurate with a set minimum green purchase price relative to a living income reference price, along with strict control on the green market, could be a first step towards protecting the market. 

Second, the global economic conditions also differ significantly compared to during the last vanilla crash. While farmers may have been able to survive on incredibly low prices nearly 20 years ago, their economic situation is vastly different today. Inflation in Madagascar is high for an economy which still relies on imports for critical staples such as wheat, a commodity with a price that has been heavily affected by the war in Ukraine, negatively affecting the economy and the purchasing power of the population. With heavy reliance on imports for staples, the Ariary continues to weaken against the US Dollar, further worsening the conditions locally.  

Food security is still a concern, especially when considering the impact of Cyclone Freddy on Madagascar food security, as outlined in a report by the Food and Agriculture Organization of the United Nations (source). Is it reasonable to expect farmers to survive with export prices as low as seen in 2003-2004 in these economic conditions? 

Third, tighter regulations are coming to the European Union on Nicotine Minimum Residue Limits (MRL) for spice products, which include Vanilla. Regulation (EU) 2023/377, going into effect in September 2023, sets the Nicotine MRL to 0.02 mg/kg (down from 0.3 mg/kg in the currently applicable Regulation (EU) 2022/1290). However, it appears that it will be revised to 0.05 mg/kg, as this is the highest measuring sensitivity available in standard methods employed by laboratories. While most vanilla has tested below the threshold of the current MRL, it appears that a substantial proportion will not be able to pass the new proposed values. This move would have deep ramifications to any company selling vanilla and other spices to customers in Europe. The industry is now scrambling to appeal to the European Commission to delay the implementation until further studies are conducted, as currently there exists no published research on naturally occurring nicotine in vanilla. Such study, if conclusive, could help to determine how much nicotine naturally occurs versus external contamination, and establish an informed MRL based on these results. 

We have seen through De Monchy Natural Products’ own production coming out of the green market that properly prepared vanilla can be in line with the new MRL. However, questions remain on the vrac market where preparation standards are less controlled, and the beans lack traceability. 

Fourth, the “wait and see” approach can only last so long. Most buyers have sufficient stock to last them through the end of 2023, but they will need to replenish in 2024. Will the demand be enough to absorb the current production and carryover stock? Perhaps not, but a decent green vanilla price and matching export price could be enough to alleviate some of the pressure on the market and, more specifically, the farmers. 

And last, but not least, a topic which is not supported by enough actors on the market: sustainability. As we know, Sustainable Development is at the intersection of three spheres: social, environmental, and economic. Never has it been more obvious how market conditions impact all three spheres. 

From a social perspective, many farmers sustain their families through the cultivation and sale of vanilla beans, some carrying on the tradition for generations from their ancestors. These farming communities have a voice and will vote in the upcoming election, which is only one of the many reasons why their well-being should be at the center of considerations from all stakeholders. Furthermore, tremendous efforts have been made to prevent child labour. These efforts could be severely impaired in a shattered vanilla market. 

From an environmental perspective, due to the current vanilla crisis, we can already see that some farmers must turn to other crops for sustenance, rice being the preferred choice. Unfortunately, planting new rice fields often comes at the cost of deforestation, a major issue around the world and particularly so in Madagascar. 

And at the crossroads between the social and environmental spheres, El Niño could have a devastating impact on the island’s most vulnerable communities. As a reminder, this climate phenomenon was the cause of widespread famine in the south of the country back in 2016, a time when vanilla was on its way to the all-time high price of USD 600 per KG. The administration continues to struggle with this issue today. 

And from an economic perspective, sustainable development must be economically viable for all actors in the supply chain. Certifications such as Fairtrade® and Rainforest Alliance^TM are trendy with consumers, but one must question the true purpose and motivation of certified buyers. Is it to appeal to consumer needs in search of higher profit margins and market share, or is there truly a motive to improve the sustainability of the natural vanilla industry?  

For years, some exporters and buyers have heavily invested in creating a more sustainable and traceable supply chain. The farming community played along, willingly making efforts to learn best cultivation practices, taking steps to get their plots certified, joining farmer associations and so on. Now they face the prospect of being abandoned by the industry. There is a huge risk to undo years of efforts on sustainability, traceability and the professionalisation of the sector at the source. 

Today is the time to set a new standard, without waiting for government intervention, to avoid a repeat of the past. The alternative is allowing bad speculating actors to bring the market down. If the market has no control over government policies, it has control over the price at which it is ethically comfortable to operate; this is not for a lack of information. In 2021, the SVI (Sustainable Vanilla Initiative) renewed its study on the Living Income Reference Price, setting its recommendation at 60,000 Ariary (+/- $14) per kg for green vanilla. Last year, the government itself set the price for the green campaign at a minimum of 75,000 Ariary per kg. No buyers on the green vanilla market means that desperate farmers will be forced to sell at much lower prices to opportunistic speculators, pushing the farming community further into poverty.