Vanilla growers in trouble as prices fall

Even as the new harvesting season has just commenced, vanilla growers are in deep crisis owing to fall of prices by more than 50 per cent.

The average price of green beans has dropped to Rs 50-60 per kg at the beginning of the season from a price band of Rs 90 -130 per kg during the last season.

The crucial fact is that there will be an increase in production this time by around 50 per cent and the total production is estimated at 1200 tonne.

The heavy drop in prices is mainly due to withdrawal of major procuring agencies and processing companies this time. Vanilla India Producer Company (VANILCO), a growers' company decided to withdraw from the procurement operations this time while major processing and exporting companies also decided not to enter the market at least for the time being.

As global price of natural vanilla is plummeting, processing companies are rather reluctant to buy vanilla.

During the recent weeks, global price of cured beans dropped to $15-20 a kg from $30-35 a few weeks back. The high volatility in global market forced major companies to withdraw from the market.

Paul Jose, managing director, VANILCO, told the Business Standard that the board of directors of the company decided to withdraw from procurement operations due to an unsold stock of 20 tonne cured beans.

He said that the company would enter the market only after it had sold out the entire carry-over stock or otherwise it would be in deep crisis. The company had procured 132 tonne of green beans of the total production of 800 tonne during the last season at an offer price of Rs 250 a kg. But this time as major processors have not entered the market, traders and stockists are offering only Rs 40-50 per kg for green beans.

Meanwhile, Spices Board has submitted a proposal to the Ministry of Commerce for procuring vanilla but so far, no decision in this regard has been taken.

According to S Kannan, director, Spices Board, the board raised the issue seriously with the Commerce Ministry and the state government, and that a decision was expected soon.

Vanila growers warned that if some serious actions were not taken to address the problem, they would be left with no options but to commit suicide. A grower from Ernakulam district said that as VANILCO had withdrawn from the market, there were no takers for vanilla.

"We have to either destroy the entire produce or sell at throwaway prices. The heavy rainfall also affected the processing of the crop and processing is critical for vanilla to keep the quality of the product," he said.

Meanwhile, according to latest estimates, total production will not be doubled as expected earlier. The production is re-estimated at the level of 800 tonne as farmers had not given serious attention to the crop in the light of falling prices.

Paul Jose said that it could be assumed that a global cartel of buyers was working as international prices had dropped to $15-20.

According to reports, production in Madagaskar is normal this time (1500 tonne) and there is no large increase in the global supply of vanilla. The production will be normal in other producing countries like Indonesia and Papua New Guinea. But the price had dropped by almost 50 per cent and is poised for even serious crisis.

As global price is falling, the $40 call options introduced by VANILCO in September 2006 evoked poor response and the company planned to sell the carry-over stock in the domestic market itself, mainly to Amul.

In India, at an average 650 tonne synthetic vanilla is being imported mainly from China annually for producing ice cream, cola-based drinks and chocolate.

In response to requests of natural vanilla growers, the government had agreed to promote the consumption of natural vanilla. The growers had demanded that the government should issue notification making the use of natural vanilla compulsory in food products.

If there is 1 percent shift to natural vanilla, India will be short of natural vanilla. But despite that Jairam Ramesh, minister of state for commerce, during his visit to Kerela in June, agreed to call a meeting to discuss various issues related to vanilla.

Spices Board promoted the growing of vanilla as the global price had increased beyond the level of $ 500 per kg during 2003. But now with a paradigm shift in the pricing of vanilla, high hopes of around 200,000 plus growers in Kerala, Karnataka and Tamilnadu are dashed.