By: AccuVal Associates, Inc.
With the recent buzz regarding vanilla prices and the summer ice cream months approaching, can consumers expect to pay more for vanilla soon?
A vanilla-crop shortage in two of the world's major suppliers has prompted some nervous buyers to stockpile the key ingredient of vanilla ice cream and, in the process, drive up prices. The price for a kilo has jumped from $25 to $40 in recent months. Although spot buyers of vanilla may experience price hikes, vanilla and pure flavor extract producers don't expect significant price increases for products in 2012 or near-term supply issues. Here's where that leaves the market at large.
On average, Mexico and India produce a combined total of approximately 100 tons of vanilla beans each year, or about 5 percent of the total worldwide harvest of 2,200 tons. In Mexico alone, production of the spice has fallen by 90 percent in the past year, according to data from commodity analysts Mintec. The 2010 and 2011 crops were very poor, as a result of a severe drought. Prospects don't look much better for this year.
The majority of natural vanilla (65 to 80 percent) is produced in Madagascar, and its crop yield is indicated as normal for 2012. Virtually all of the world's vanilla supplies are grown in Madagascar, Mexico and India, and with Mexico's yield having dropped by a staggering 90 percent and India also challenged, Madagascar is left as the only top supplier. The supply pressure on the country might be high, but solid crop expectations offer some comfort.
Food-grade vanilla, known as black vanilla because of the color of its dried pods, is grown in only a small handful of countries. It's one of the most expensive spices in the world because it's labor-intensive. Vanilla flowers are artificially pollinated by hand, and the fruits are handpicked once ripe. In the international market, one pound of whole vanilla pods could cost from $50 to $200. Pure vanilla extract comes at a price of $2 to $3 per ounce, and it can take as long as six years to get vanilla beans from the field to the supermarket.
The main application of natural vanilla is for flavoring ice creams, soft drinks and numerous other food goods. Nearly 300 tons of vanilla beans are used in the U.S. every year, just for preparing cola-type drinks. The dairy industry also uses a large percentage of the world's vanilla in ice creams, yogurt (both fresh and frozen) and other flavored dairy products. With the summer season approaching, annual demand for the product is high.
Vanilla is additionally used in medicines, perfumes and other industries. Natural vanilla is a key ingredient for the flavor and fragrances industries, for example. These industries, in turn, provide ingredients for food and cosmetics companies. A small but relatively stable proportion of vanilla flavor is sold directly to consumers, who use vanilla beans, powder and extract for cooking and baking at home. It's also used as a flavor for certain medicines and as a fragrance to conceal the strong smell of rubber tires, paint and cleaning products.
Industry experts disagree about the effects of supposed stockpiling on the global market. Some reports have suggested that the vanilla shortage in Mexico led to bulk buying in Madagascar. Some 40 percent of the world's current stock of vanilla — about 985 tons — shipped out of Madagascar recently. However, other industry experts report that the large shipments are normal for this time of year and nothing to be alarmed by.
Consumers hungry for a vanilla treat should stay shielded from the majority of this volatility, however. The majority of food producers are insulated, by virtue of long-term supply agreements.
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