G.K. Nair

`We need to form a cartel as in Madagascar'

PRICE WARS rob vanilla of its flavour

Kochi , April 2

Undercutting by exporters in Papua New Guinea and India is said to have arrested the possible upward swing in vanilla prices at a time when orders are trickling in from the end-user food industry in the US.

This has happened at a time when sentiments were high and prices were expected to stabilise at $50 a kg. "It would be good for all stakeholders such as the farmers, processors, sellers and buyers, mainly the end-user food industry to buy at $50 kg level," reliable vanilla trade sources told Business Line. But, it could not happen because of the undercutting, they said. As a result, the price for gourmet grade vanilla is ruling at $20-$25 a kg.

Compulsions

Farmers in Papua New Guinea are poor and, hence, they might sell at a very low price. On the other hand, their crop is mixed unlike the Indian vanilla, which is pure with high flavour profile.

Therefore, selling the Indian produce at such a low price is dangerous for the growers here. This reminds one of the fate of the tissue culture sector in the country during the early 1990s. Many labs came up in the country and competed among themselves by undercutting. This resulted in the closure of several units. Such a scenario would emerge in the vanilla sector also, they warned.

The production of vanilla in the country in 2005 is estimated at around 200 tonnes of cured beans. The actual export position of the commodity would be known only by May-June, they said. Shipments during the first 11 months of the current fiscal were 28.1 tonnes valued at Rs 5.90 crore as against 26.1 tonnes worth Rs 25.46 crore in the same period last year. Difference in the value shows the sharp fall in the unit value, which fell to Rs 2,096.89 a kg this year from Rs 9,775.74 kg last year.

Need for a cartel

They said for the past several months there was no demand from the US. But, of late, orders for small quantity such as for 100 kg of A-grade beans has started trickling in. "It shows that the demand is slowly building up," they said.

The sellers in Madagascar, the world's largest producer of vanilla, are united, they pointed out. Similarly, there should be a cartel here too and they should meet before the beginning of the season and chalk out a strategy, they said.According to reliable sources, the Karnataka Vanilla Development Trust and an oleoresin unit in Kerala have entered into an agreement to buy an estimated 30 tonnes of cured beans from the former at Rs 1,000 a kg ($22). The average price would come to Rs 800 ($19).

In a bid to arrest the fall in price, on the direction of the Union Commerce Ministry, the public sector STCL Ltd had already bought three tonnes of cured beans at Rs 1,500 a kg of A-grade bean. But, lack of demand and constraints to store it seemed to have forced the government agency to go for producing vanilla extract now.

Buyers' market

In the world market, buyers are increasingly quality-conscious and, hence, they are rejecting the product if there is a marginal difference in the flavour profile, industry sources said.

The global natural vanilla demand in 2004-05 was estimated at around 1,200 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 the prices down.

The demand would pick up if the prices remained 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.

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