Cinnamon Demand Increasing Despite Lower Production Volumes
The cinnamon market is a rapidly growing business across the world as the demand for specialty teas and coffees as well as spice-infused baked goods is growing. The spice is also becoming more in demand in cosmetic products in the European market, as an increasing number of skincare companies are now infusing cinnamon into their products.
Production, however, is not enough to meet with increasing demand which is causing prices to rise. Average cinnamon prices in Japan in 2019 were at JPY 499 (USD 4.56) per kg and high-quality cinnamon was purchased at approximately USD 36.5 per kg which has risen by 30% over the last five years.
Cassia Cinnamon Production Decreases Despite Demand Increase
There are two main varieties that are traded in the market. Cassia, the less expensive variety, is mostly produced in China, Indonesia, and Vietnam, and the high-quality variety Ceylon, which is sweeter and softer, is mostly produced in Sri Lanka. While Indonesia’s focus lies on markets in the US and Europe, China and Vietnam are focusing on the South East Asian and Middle Eastern markets.
Due to the significantly lower price of cassia cinnamon, industrial buyers of the spice use a mix of both varieties to lower costs, which has caused demand for the Cassia product to rise and the market share for Cassia currently consists of 90% and Ceylon of 10%.
Despite growing demand, however, production is not expected to be able to keep up. China in the spring of 2019 saw continuous rainfalls that made harvest difficult and caused prices of the Cassia variety to rise. Similar unfavorable weather conditions caused Indonesian farmers to switch products and caused a decline of supply for the Cassia variety for the 2019/2020 season.
Madasgacan Ceylon Cinnamon Fills in for Sri Lanka, But Is It Enough?
While the main supplier pool for the Cassia variety has not seen any particular changes, the traditionally Sri Lankan-dominated Ceylon cinnamon market is seeing some shifts in recent years.
Sri Lanka has been losing its edge as the main supplier of the Ceylon variety as its volume share decreased by 1.7% and CAGR at -9% during the last five years. Although Sri Lanka still dominates the Latin American market, particularly Mexico, the country’s challenge lies in its limited ability to produce on a larger scale, due to its dependence on small-scale farmers.
Madagascar has risen up in its stead as the biggest supplier of the Ceylon variety to Europe. The country currently takes up 24%, 23%, and 25% of imports to Germany, France, and Spain respectively. However, it is unsure whether Madagascar will be able to match growing demand as its worldwide volume share currently ranges at 2%. Nevertheless, the country records a high CAGR of 17% in terms of volume and 31% for value market share and is expected to be one of the leading producers in the upcoming future.
Prices to Rise due to Lower Production
Thus buyers of the spice should expect prices this season to remain at its high point or even increase. An interesting trend recently is how an increasing number of customers in top importing regions such as the US, India, Europe, and Mexico, are valuing transparency as well as quality/safety assurances from credible management systems, and are willing to pay for the premium costs. This is expected to work as a strategic turning point for major exporters to increasingly focus on how their products are branded and presented to potential buyers amidst the shortage.
