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G.K. Nair

On increased availability, limited buying

Kochi , Dec. 13

Increased availability on the one hand, and limited buying on the other continue to push prices of vanilla down in the domestic and international markets.

Domestic production this year is estimated at around 200 tonnes of cured beans. But buying has been limited. Three companies have bought some quantity. Sales have taken place at Rs 60, Rs 30 and Rs 15 for the three grades of green bean, market sources told Business Line on Tuesday. Unremunerative prices during the past couple of years appear to have resulted in growers neglecting their plantations, they said.

Meanwhile, in the international market, Madagascar the world's top producer, has started selling cured bean at $15-18 a kg. There also the buying has been limited, industry sources said.

According to them, production is Madagascar this year is estimated at 1,800 tonnes. As buying was very thin there is likely to be a good carry forward stock for next year. The production in 2007 is also likely to be around 1,600 tonne. In which case, the availability next year would also be higher when the carry forward stock is added.

On other hand, production in countries, including India is also going to be on the higher side. Given this scenario, if the demand fails to pick up corresponding to the increase in production, prices are unlikely to improve even next year, they said.

The solution

The only solution now to help Indian growers is to increase the use of natural vanillin in the country, they added. Currently, consumption of synthetic vanillin in the country is estimated at round 500 tonne a year and if part of it is substituted by natural vanillin, the scope for vanilla cultivation in the country, mainly in the southern States, is enormous.

The import of vanillin and ethyl vanillin together to the country during 2000-01 was 404 tonne, with an estimated annual growth of 8-9 per cent. The consumption pattern of the industries is biscuit (11.50 per cent), ice-cream (4.80 per cent), perfumery/flavours (27.90 per cent), agarbathi (52 per cent), pharmaceuticals (2.80 per cent) and misc (1 per cent).

Annual vanillin growth in the mature markets of Europe and the US is reportedly stable at around 2 per cent. But in China, this growth is set at over 10 per cent. Given the increase in demand, Chinese producers are said to have increased prices for vanillin and ethyl vanillin approximately by 20 per cent in September.

Alternative

"Synthetic vanillin is a cost-effective alternative to natural vanilla and the global demand currently hovers around 16,000 tonnes a year. It not only substitutes for vanilla, but also supplements adulterated vanilla extracts," some industry sources said.

The world demand for vanilla in 2005-06 was estimated at around 1,000 tonnes as against an estimated production of 2,300 tonnes.

While the production is on the increase there is no corresponding growth in demand from major consuming countries. "A more sellers and few buyers situation had emerged" making it a buyers market, pushing prices down.

Such a scenario has emanated from the fact that for the past five years, vanilla farmers had benefited from high prices due to political crisis and devastating cyclones in Madagascar.

High prices encouraged other countries including Papua New Guinea, Uganda, India, Costa Rica and Colombia to enter the vanilla business. The production increases, combined with a drop in demand from food manufacturers, using more and more synthetic vanillin, have sent wholesale bean prices down almost 90 per cent from their peak in December 2003.

Expanding demand

The main criterion, therefore, for expanding domestic as well as international demand is the price. When the cost of synthetic vanillin was at $15 a kg, the natural vanillin was available at over $80 about six years ago.

The need of the hour is to have a shift in the consumer's attitude towards natural vanillin. Hence, as in the case of US where it has made mandatory that certain category of ice-creams should contain only natural vanillin, here also some such legislation may have to be enforced.

Natural vanilla is subjected to strong competition on two levels. Within the vanilla flavour category, there is competition from synthetic vanilla, or vanillin. Vanillin is the major flavour constituent of vanilla, but it is produced through various bio-technological processes, which continue to be developed. Although natural vanilla contains many more flavour components than just vanillin - several hundreds have been identified— the difference in taste with synthetic vanilla is hard to detect in most applications, especially for the untrained "mouth".

There is also a production of ethyl-vanillin, but this has a less agreeable taste and is used principally in cosmetics and animal feed.

Vanilla flavour is also in competition with other flavours. At this level, vanilla has a strong position as one of the world's most popular flavours. Vanilla is especially popular in ice-creams, beverages, desserts, dairy products, chocolate, confectionery products and pastry. Recent high profile introductions such as Vanilla Coke confirm this popularity, they said.

While vanilla flavour experiences strong and growing demand, within the larger category real vanilla is increasingly being substituted with synthetic vanillin. This substitution was catalysed by the limited availability and extreme price increases in 2002 and 2003, but also responds to long-term factors, including consumer preferences for natural products; technological developments, especially in vanillin production; and changes in regulation.

The consumer trend of demanding natural products is a positive factor. Demand for natural vanilla showed continuous growth throughout the 1990s, in spite of the price difference that was huge even then. On the other hand, this trend is balanced with an increasing price-consciousness consumer and other concerns. The demand for the natural variety of vanilla is probably only decisive in the gourmet segment. In the mainstream segments, there is a strong tendency to "cheat", i.e. to use more economic vanilla substitutes, especially, when it is not easily noticed by the average consumer. But this is where the Government needs to step in, they added.

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