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+ Daniel Aviles Commodity Information Analyst

Unique Aspects of the Vanilla Market

McKeany-FlavellCommodities. Ingredients. Intelligence.

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Unique Aspects of the Vanilla Market“Money is the best fertilizer” and “the cure for high prices is high prices” may sound like commodity clichés, but they are not mere truisms. Every market will eventually return to these rules, a lesson we advise our clients to remember. Yet there is always an exception: For vanilla, it often seems that the rules are reversed, and price shifts have counterintuitive effects. This ingredient is a challenge for all players, from growers through processors to end users, but understanding vanilla’s supply cycle and pricing dynamics may at least partially demystify this market.

What sets the vanilla market apart:

+ Difficulty: Cultivation is extremely labor intensive, and a high degree of expertise is needed to grow the plants and process the pods (beans).

+ Vulnerability: Production is significantly concentrated in one origin, Madagascar, which has in the past crowded out competing origins. The natural food trend has now made demand less elastic, and pricing may follow suit.

+ Price pressures: Early harvest is commercially viable and is encouraged by various factors but reduces eventual production.

+ Technological “advances”: Innovations may not be helping quality or sustainability.

Vanilla fruit, pod, or bean with closeup of seeds

A quick introduction: Vanilla is a flavor made from the pod-like

fruit of some members of the vanilla genus of the orchid family,

the only orchid that yields an edible fruit commercially cultivated

for food use; vanilla fruit is widely referred to as a “bean,” a

convention that we follow here. Like chocolate, vanilla was first

used by pre-Columbian Mesoamerican peoples. In the food and

beverage industry, vanilla extract can be used to increase a food’s

perceived sweetness and to round out certain flavors, such as

chocolate, nuts, and certain fruits.

What Is Vanilla?

Unique Aspects of the Vanilla MarketMcKeany-FlavellCommodities. Ingredients. Intelligence.

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The vanilla plant may take 30 to 36 months to begin yielding

fruit. Commercially significant yields may be seen at the four-year

mark; output peaks around year seven.

By its tenth year, yields will be down about a third from that peak.

By comparison, cocoa trees take between three and five years to

mature enough for commercial production; depending on the

variety, their output peaks at about year ten, and viable commercial

production can continue for another 15 years after that.

Those familiar with gardening would not be surprised that vanilla plants require

careful husbandry. Manuals for vanilla growers extensively discuss managing shade

at different periods of the year: Too much exposure to sunlight, and vanilla plants

will literally sunburn. Too much shade will cause the vine to weaken. In addition to

vanilla orchids, growers must plant the shade and tutor trees that protect and hold up

the vanilla vines, respectively, and prepare the soil carefully. Roots can be damaged

by a careless footfall, and damage to the stems must also be avoided. Mulching is a

complex subject all its own. Pest management is a must, naturally.

Famously, each vanilla orchid flower must be pollinated by hand within a day

(36 hours) of opening. Blooming can occur in two or even three stages or phases.

And each separate hand-pollination yields a single bean that matures six to nine

months later and must be carefully picked by hand, as well. (While cocoa can be

hand-pollinated, boosting yields, the mechanism known as cherelle wilting naturally

caps the potential gains in cocoa pod production per tree.)

The Art of Growing

Growing Vanilla

Green vanilla bean


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+ Some of the details discussed may vary by vanilla variety or by country of cultivation.

Vanilla Cultivation, 20° North & South of the Equator

World Vanilla Calendar

Source: McKeany-Flavell


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Vanilla Terminology

Madagascar’s Central Position in the Vanilla Industry

There are numerous factors that allow Madagascar to return, boom-and-bust cycle after cycle, to a market leader position, such as geography and climate, the depth of Malagasy tradition and experience with vanilla cultivation and processing, and the vaunted flavor, aroma, and vanillin content of its beans. But not least is a basic fact: The country’s low wages, averaging less than US$2 a day, allow cultivation to continue when world vanilla prices collapse to lows that discourage growers in other countries. Madagascar is ranked 158 of 188 on the Human Development Index (UN, 2017) and 179 of 187 in per capita GDP (IMF, 2017 PPP). Other options for making a living are limited, and perhaps growers in Madagascar trust, not without reason, that higher prices and even the next price boom are always ahead.

Tradition aside, inexpensive labor allows Madagascar growers to stay in vanilla. But Madagascar isn’t just the low-cost origin: Its vanilla also regularly fetches a premium over other major origins. Bids for Ugandan beans, for example, are often reported 10 to 15 percent lower.

In January 2018, Cyclone Ava spared vanilla growing regions of Madagascar, but over 50 deaths were reported, and tens of thousands were displaced.

For comparison, more than 360 deaths were attributed to Cyclone Gafilo (2004), still the region’s most intense tropical cyclone on record.

More than 80 deaths were linked to 2017’s Cyclone Enawo.

With Madagascar’s limited resources and infrastructure, cyclones can have outsize effects.

Prior to 2000, Madagascar was producing about 70 percent of the world’s vanilla, though this share fluctuated as other origins entered and exited the market. More recently, Madagascar alone produced an estimated 80 percent or more of the world’s output. This concentration of supply makes vanilla pricing highly susceptible to elevated volatility. By comparison, the top two cocoa origins have produced only around 60 percent of the world’s supply in recent years. And for a commodity crop like sugar, in most years the cumulative out-put of the top five countries falls several points short of half of global output.


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Vanillin Major component of vanilla extract

Vanilla ExtractSolution of vanilla compounds and ethyl alcohol; commercial varieties may also include glycerin, propylene glycol, sugar, dextrose, and corn syrup

Black Vanilla Top-quality, premium beans

Red Vanilla So-called “extraction-grade” beans

Green VanillaImmature beans, may be sold in the vrac (semicured) bulk market

Source: NASA

Market DynamicsWhile we will be discussing the idiosyncrasies of the vanilla market, some basic economics still hold. Price changes still push the market to adjust, as the vanilla market in the early 2000s showed: Difficult weather, including several damaging tropical cyclones (2000 and 2004) and cool, wet conditions during the 2002 bloom period depressed vanilla production in Madagascar. Prices reported for Madagascar vanilla climbed from $20 per kg and under in 1999 to above $550 at the end of 2003. Predictably, prices for vanilla from other origins rose in response, above $300 for Papua New Guinea and above $400 for Uganda and Indonesia, according to trade sources.

MADAGASCAR VANILLA

Bourbon vanilla drying in an Antalaha factory. Madagascar accounts for more than 75% of the world’s vanilla fields.

Madagascar & Vanilla Price History


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*Estimate Source: Trade sources

During the supply crunch of the early 2000s, elevated pricing had the expected effect of encouraging supply growth: Other origin countries like Indonesia, Uganda, and India expanded planted hectarage. Vanilla output peaked around 2008, rising by about two-thirds from earlier levels. As it takes vanilla 30 to 36 months to mature enough for commercial production, new growers enticed by the early-2000s market missed out on those elevated prices. By the time the new entrants’ vanilla made it to the market, Madagascar production had returned to norm, and vanilla pricing was down below $25 and even $20 per kg.

Supply had grown, while some demand had left the market. Pressured by the 2002-2004 price runup, demand for vanilla dropped drastically, falling an estimated 40 to 45 percent. Many food manufacturers switched to vanilla alternatives, and the grow-ing popularity of vanilla flavors since then has been facilitated by the wide availabil-ity of less expensive synthetic vanillin.

In response to the fickle demand of those years, vanilla pricing fell from its highs by an estimated 90 percent in the second half of 2004. Those with experience in other commodities might think that $25 or even $20 per kg compares rather favorably with other crops, like coffee or cocoa. However, because vanilla cultivation is exceedingly—almost farcically—exacting and labor intensive, there is little room for grower profit at such low prices, even in Madagascar.

The newly depressed prices did eventually encourage demand to grow. According to Mintel GNPD, 20,517 new vanilla products of note were introduced between 2010 and 2016, including 3,275 products in the North American market. “Dutch chocolate” moved over to make space for “French vanilla” in the consumer’s lexicon.

Vanilla Market Dynamics


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Synthetic Vanillin The widely popular Nutella, for example, uses synthetic vanillin. Vanilla alternatives used in food are not, as is still sometimes reported, derived from castoreum harvested from the glands of beavers. This would be far more expensive than vanillin that can be synthesized from any number of other, non-animal sources. Today, synthetic vanillin is often derived from petrochemicals or lignin, a coproduct of cellulosic sugar production. (Rarely, castoreum derivatives are used as fruit flavors, according to some reports, but the bulk of castoreum derivatives is in fact used in perfumery.)

With the rise in global production between 2004 and 2009, vanilla pricing remained entrenched around $25 per kg, and opportunistic market entrants such as Mexico began to consider competing crops as vanilla prices lost their luster. Market dynamics began to shift in 2009, when a military-backed coup took place in Madagascar. The country is highly dependent on foreign donors and financial aid, and this political crisis was followed by a financial one as the flow of foreign funds and investments slowed or stopped altogether. World vanilla demand continued rising, but global stocks were respectably above 2,000 MT. Uganda, too, saw civil unrest that helped pressured its future vanilla output.

When the traditional aid sources dried up, China’s government was happy to step into the breach and exercise its own soft diplomacy. The influx of Chinese aid and investment extended to the vanilla market, and the influence of Chinese traders—along with Malagasy of Chinese descent—has grown. A similar shift has been reported for Uganda, another vanilla origin that has been the beneficiary of China’s soft-power approach.

Conditions were poor during the bloom in both 2009 and 2010 for Madagascar. Rains also hindered drying operations in 2010. While moderately good flowering was reported later, delays with flowering and thus pollination usually lead to depressed yields, with lower vanillin content and less developed flavor for beans.

Weak vanilla pricing had a predictable effect on supply, as seen in the chart below. (While FAO figures are not definitive, they help illustrate supply trends.) For example, growers in India were discouraged by both the poor pricing and disease damage, and the country’s nascent production dwindled by 2009.

Weather & Politics Drive Down Supply

World Vanilla Cultivation (FAO) vs. Reference Pricing

Source: FAO, trade sources


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The world saw a supply deficit in 2010, estimated as high as 500 MT. In 2011, the bloom in Madagascar again went poorly—along with a return to political instability. The initial bloom phase for the 2013 season was poor, and even though better flowering was reported later, the crop’s overall quality was also poor. Bloom was again poor in 2014, enough to intensify buyer interest once harvest began in 2015, adding to the bullish mood.

As vanilla’s prices and popularity rose, middlemen, tradehouses, and flavor companies took notice. Several major companies invested in specialized curing facilities in Madagascar: This allowed them to buy cheaper green beans instead of paying higher prices to growers for cured beans, then use their industrial equipment to “quick cure” the beans, another shortcut. If the beans aren’t cured properly, however, quality can suffer. Most of the companies would eventually iron out their difficulties, though some in the food industry remain skeptical about the quality of some of this production.

Weaker output in Madagascar was compounded with poor output and quality from Uganda and India, and prices tripled by the time of the 2016 harvest. Stocks were being drawn down around the world, and even low-quality and years-old beans were finding buyers. It is under these conditions that idiosyncrasies of vanilla were most clearly revealed.

The trade in immature vanilla beans is known as the green market, and it offers growers a chance to more quickly cash in on higher prices. The result of picking beans earlier, however, is smaller beans with lower vanillin content and undeveloped flavor—the flavor in vanilla beans develops in the last months of the bean’s development, after the bean has virtually reached its full size. If full maturation is allowed, between 5.0 and 5.5 kg of uncured beans will yield about 1 kg of cured beans. Picked too early, some 8.0 kg will be needed: This is one way that higher prices make for smaller crops.

The price on the green market had already reached upwards of $60 per kg in 2016—higher than the price for fully mature, high-quality cured beans prior to 2013. So, higher prices had paradoxically translated to lower yields, smaller production, and lower quality. The green price would eventually rise to $80 by the start of 2017, buoyed not just by the allure of quick cash but also by speculative demand and concerned buying for quick curing: Companies had relaxed, keeping their stocks light in previous years, but quickly sensed the change in mood and began more aggressive purchasing.

High Prices Also Pressure Supply

Green vanilla beans


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Vanilla Calendar, Madagascar: August-September Bloom Is Critical

Source: McKeany-Flavell

Speculative fervor was rampant even before the arrival of Intense Tropical Cyclone Enawo in March 2017. Early fears that the vanilla crop had been decimated would later prove to have been excessively alarmist: What was first reported as damage to more than 80 percent of the crop eventually came in closer to 20 percent. Overall crop quality often suffers after a cyclone, as each vanilla bean is precious to growers, and immature beans knocked down by winds are recovered and mixed in with remaining beans harvested later.

As prices climb, unfortunately, vanilla bean theft becomes more profitable. Growers must stay up nights or hire guards to prevent trespassers from picking their beans, and the higher the price on the green market, the earlier vanilla theft will begin in the field. Again, price spikes already discourage stringent quality control on the part of both growers and middlemen. The high risk of losses to theft works together with the high prices to make picking and selling early more attractive — hindering bean sizing and the development of flavor and vanillin content.

Wildcat loggers are another group that is not picky about quality or flavor. Rosewood smugglers have reportedly found in vanilla a tempting channel for money laundering, and it may matter little to them whether beans are ripe or whether their flavor has been allowed to develop. Their main concern is laundering their logging profits, and thus more money pulls in beans that are lower still in quality.

The introduction of another technology, albeit a humbler one, also combines with higher prices to curb vanilla production: vacuum-packed bags. Growers who wish to pick early may vacuum-pack green and semi-cured beans, then hold onto that supply in hopes that prices will pick up further later in the season. As this storage method can lower bean quality, Madagascar’s government has discouraged and even banned its use, though the practice apparently remains popular. When theft is a serious concern, growers can hardly be blamed for resorting to vacuum packing: Bagged beans are far easier to guard than those maturing in the field. The government has also sought to discourage earlier picking and exports, but again, high prices make for a compelling counterargument.

There is one more unintended consequence of high prices. While production can be boosted by farmers eager to maximize profits, high production one season can mean lower production from the recovering plant, an effect known as vine fatigue.


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As with cocoa, the United States must import all the vanilla the food and beverage industry needs. As might be expected, U.S. imports of vanilla rose in the decade following the 2002-2004 market, recovering from their fall in 2004, after high prices encouraged food manufacturers to reformulate to alternatives or cut the vanilla content of their products. Synthetic vanillin, for example, is often found in chocolate candy bars, where it balances cocoa’s bitter flavor. The fall in pricing encouraged many companies to consider real vanilla as essential in their formulations—influenced by the explosion in consumer demand for natural products and ingredients.

As world supply recovered after 2004, the price for vanilla dropped, as evidenced by the declining value of U.S. imports from 2005 through 2011. With vanilla pricing returning to stratospheric levels, U.S. import figures are already declining, but there is no clarity about how far the correction will go. Companies that have been making “natural” product claims may be reticent to reformulate, making vanilla demand some-what less price sensitive than the last time its pricing skyrocketed.

Under these conditions, perhaps the world’s vanilla supply might be more stable if there is a slower price decline, making for a more alluring market that encourages other origins to increase—and, crucially, to continue—their own production. If prices were to again quickly descend to below $25 and $20 per kg, production outside Madagascar would likely be discouraged, potentially setting the stage for another boom cycle. But given vanilla’s popularity and the current emphasis on natural ingredients, we may be spared such a scenario. Instead, a soft landing for prices could mean a more stable and less vulnerable supply picture.

A Look at U.S. Demand

U.S. Imports of Vanilla, by Value & Volume

Source: USITC


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