Tridge Guide Post

What is the price trend of vanilla in the Madagascar?

Vanilla
Madagascar
image
By Jinwoo Cheon
Updated 2023년 11월 8일
The first years after vanilla prices hit a peak above $600.00/kg. about 6 years ago, a slow and steady decline ensued. Initially this was the result of a combination of factors, namely an unsustainable high price combined with poor quality and plummeting demand, just as was witnessed in 2004 – 2005, after prices peaked above $500.00/kg. In 2020, as COVID took over the world, there was a rebound in demand for industrial vanilla as retail grocery activity boomed. This temporarily arrested the decline in prices. From 2020 through the first half of 2022, vanilla prices were stable and exports from all origins were very strong. Increasingly abundant vanilla production (mostly because of new plantings) foretold further price erosion soon to come. In the meantime, the short-term spike in demand and prices for vanilla drew government scrutiny.

The first years after vanilla prices hit a peak above $600.00/kg. about 6 years ago, a slow and steady decline ensued. Initially this was the result of a combination of factors, namely an unsustainable high price combined with poor quality and plummeting demand, just as was witnessed in 2004 – 2005, after prices peaked above $500.00/kg. In 2020, as COVID took over the world, there was a rebound in demand for industrial vanilla as retail grocery activity boomed. This temporarily arrested the decline in prices. From 2020 through the first half of 2022, vanilla prices were stable and exports from all origins were very strong. Increasingly abundant vanilla production (mostly because of new plantings) foretold further price erosion soon to come. In the meantime, the short-term spike in demand and prices for vanilla drew government scrutiny. The enforcement of rules and regulations within the sector, such as opening harvest dates, closing export dates and repatriation obligations were far more rigidly applied. In addition, the issuance of export licenses became highly politicized and were granted only when an exporter’s income tax obligations, however questionable, were settled.

It was in early 2020 when the idea of a fixed minimum export price gained a foothold within the vanilla sector. The Government set an initial minimum price at $350.00/kg, which was so far off the actual vanilla price on the ground that it was virtually ignored by all exporters. By late 2020 the government revised the minimum export price to USD$ 250.00/kg and insisted that exporters repatriate this amount per kilo of vanilla exported into local currency within 90 days of exporting, despite it being over $100.00/kg above the actual market price on the ground. For the most part exporters complied, not by forcing their clients to pay artificially high prices (which the buyers would not have accepted) but rather by finding the USD offshore to make up the spread between their selling price and the minimum $250.00/kg to meet their repatriation obligations. This added costs but was feasible for the 2021/2022 season and Madagascar exported over 3000 mt. Unfortunately, this figure did not represent a sudden explosion in demand but rather a foretelling of troubles ahead in the vanilla market.

In early 2022, the government decided to ratchet up enforcement of the minimum price policy and make it more difficult for exporters to make up the difference between the selling price and official export price simply by buying USD on the open market, mostly from money traders in Mauritius. They were convinced that the market could and should pay at least $250.00/kg since only a few years earlier it had paid over $600.00/kg. A very flawed rationale in our opinion. Suddenly, exporters were being hit with tax audits using the $250.00/kg price as a benchmark to calculate their export revenues. The exporters’ actual selling prices were in fact much lower. This resulted in large, unexpected, tax bills which had to be settled before any exports of vanilla were permitted. In addition, a special group of exporters was formed called the Conseil National de la Vanilla or CNV. Members were ardently pro fixed price policy, and the organization quickly took control of the direction of vanilla policy in Madagascar. Several high-profile meetings were organized between the CNV and major vanilla buyers. The first and most famous July 4th, 2022, at the Madagascar embassy in Paris. Buyers were encouraged to sign a document which committed them to respect the minimum export price of USD$ 250.00/kg, divulge their local suppliers, and estimate how much vanilla they would buy at the government fixed minimum price. The document was known as the AMI, and very surprisingly many international companies signed on as they feared they would be cut off from their supply of Madagascar vanilla. In A&H (Canada)’s opinion, it is very unlikely there was any real intent from any of the signatories to buy at the minimum price of USD$ 250.00/kg.


Wholesale prices

In 2023, the approximate wholesale price range for Madagascar vanilla is between US$ 6.3 and US$ 24.5 per kilogram or between US$ 2.86 and US$ 11.11 per pound(lb).

Source: https://www.austhachcanada.com/2023/05/28/may-2023/#:~:text=The%20Madagascar%20Government%20insists%20that,about%20USD%24%2018.00%2Fkg.


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