Wednesday, November 29, 2017

The Vanilla Shortage Looks to be Having an Effect on the Spirits Industry

Vanilla Orchid
     Surging vanilla prices are forcing many spirits producers to get creative or eat the costs.  It seems that an unprecedented global shortage of vanilla is prompting spirits producers to make changes, whether that entails pulling certain vanilla-rich products from the market, adjusting processing techniques, or simply taking a hit until prices return to normal-if they ever do.   Vanilla prices have been on the rise for years, initially because of increasing consumer demand for "natural" vanilla. 

     Vanilla is derived from the pods of an orchid, with demand outstripping production and prices rising accordingly.   A cyclone hit Madagascar back in March, an island that produces about 80 percent of the world's vanilla, reducing the supply even further.  About one-third of the vanilla crop there was destroyed.   Today the price of vanilla beans is now 10 times what it was just five years ago. From a low of around $50 a kilogram in 2013, the price rose in 2015 and 2016 to $100 to $200 per kilogram as the demand for natural vanilla increased. The price skyrocketed after the cyclone, to around $500 per kilogram. 

Vanilla Beans and the Orchid Flower
     It takes about three years from the time an orchid vine is planted until the vanilla beans can be harvested and a new supply will be hard to come by for the short haul.  This means higher prices for some time.   There are three viable options for flavored spirits makers at this time.  One is to absorb the cost, pull the vanilla flavored spirits off the shelves, buying vanilla from other parts of the world, like Tahiti, Indonesia and Madagascar or using less vanilla in the blend.

      Most of the spirits producers are reluctant to pass on these costs to the consumers because of the highly competitive nature of the business.  However, there needs to be changes made if they are to stay profitable.   
There are some producers that seem to able to survive the vanilla shortage better than others.  Particularly larger producers, that have larger stocks of vanilla will most likely be unaffected by the current vanilla shortage.

     For the most part, spirit producers are trying to keep things going on an even keel and hope that this shortage like so many other shortages in history will eventually normalize and the prices will sink back down as they did when we had the lime shortage a few years ago.