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Vanilla dips as global demand fails to pick up

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G. K. Nair

Kochi, March 30

THE price of cured vanilla in the world market has failed to improve, as the demand has not picked up due to slow conversion to natural vanillin from synthetic substitutes by the user industry in the US and other countries.

The current demand, according to international agencies, is estimated at 1,100 to 1,200 tonnes as against 2,500 tonnes, i.e. till the prices shot up to $450 a kg a year ago. The market is highly volatile and there is a downward trend seen in Madagascar, the world's largest producer of vanilla. It has about 400-600 tonnes of unsold cured beans, which are currently offered at $25 a kg, they claimed.

However, the sources said, "There will be a turnaround by next year, as the demand has started picking up, albeit slowly." All the manufacturing units large, medium and small had shifted to synthetic vanillin when the prices shot up to unprecedented levels. Except for some large ice cream manufacturers who continued to use natural vanillin even at the higher price, others moved away, pushing the demand down, they said.

According to market sources here, Indian vanilla has been fetching around $35 to $45 a kg. Exports during April-February 2004-05 dropped to 16.2 tonnes valued at Rs 23.13 crore from 20.2 tonnes worth Rs 24.49 crore in the same period last fiscal. The average unit value has moved up to Rs 14,314 a kg in 2004-05 from Rs 12,094 a kg in April-February 2003-04.

The total Indian production is estimated at around 100 tonnes of cured beans. The processing companies holding the stock are slowly releasing it for export. Even major growers, who have processing facilities, had sold out their entire produce as green beans without going in for processing, probably to avoid any future risk.

Meanwhile, the Spices Board, in collaboration with Spices Trading Corporation Ltd (STCL), has started marketing "cured organic vanilla beans of gourmet grade" at $39 for a 100-g pack under its brand, "Flavourit." The price, according to Spices Board sources, is inclusive of all the expenses such as international courier charges, which range from Rs 400-900 per packet.

The board had bought 10 kg of organic cured beans of the superior grade from the lone producer in Mysore for introducing it in the world market. The demand for gourmet grade vanilla is estimated at around 200 tonnes mainly in Europe. This would fetch a premium price over the prevailing international price, Mr S. Kannan, Director, Marketing, Spices Board, told Business Line.

The "gourmet" grade beans are above 15 cm in length; they are selected from A grade beans having over 1.75 per cent vanillin and 25-30 per cent moisture content and are brown in colour. Normally, 20-25 per cent of the total production from the scientifically cultivated farm may be of this grade, he said.

The industry sources still maintained that the demand would pick up if the prices remains at moderate levels, as the companies, which had shifted to synthetic vanillin when the vanilla prices shot up to $450 a kg, would have to revert to natural vanillin and that might take some more time.

"This year, there could be a dull market but the prices would pick up in the coming year and stabilise at a better level," a major processor exporter claimed. According to him, when natural vanillin is available at reasonable rates, the demand has to pick up.

India, he said, is currently the sixth largest producer of vanilla and it has the potential of rising to the third position in the days ahead. The current crisis in the vanilla market due to the sharp dip in prices is temporary. The rationalisation of demand and supply is expected to happen only by 2008, he claimed.

(This article was published in the Business Line print edition dated March 31, 2005)
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