Vanilla growers bank on real thing for Coke

By Richard Tomkins, Consumer Industries Editor
Published: April 10 2002 20:42 | Last Updated: April 10 2002 23:07

Coca-Cola's plan to launch a vanilla-flavoured Coke could give a much-needed boost to the world vanilla market, which has been hit by a fall in demand following wild escalation in prices.

Vanilla extract is already an ingredient in Coke's so-called secret formula, but if Coca-Cola decides to go ahead with the Vanilla Coke project, the company could significantly increase its purchases of the product.

Vanilla is one of the world's most popular flavours, being widely used in ice-cream and other dairy products, desserts, chocolate, biscuits and sauces such as cre`me anglaise. But much of the market is served by artificial substitutes for the real thing.

Until two years ago, the market for vanilla beans, which grow in pods on trees, had been running at about 2,200 tonnes a year, but in 2000 Madagascar, the world's biggest vanilla producer, was hit by a hurricane that destroyed about 35 per cent of the crop and 15 per cent of the stocks in storage.

As a result, prices soared from $25-$40 a kilo in 1999 to their present level of $200-$230 a kilo, and many food manufacturers, unable to afford the high prices, turned to artificial substitutes.

That led to a slump in demand for real vanilla just as producers, attracted by the high prices, were increasing production. Now, with annual demand down to about 1,600 tonnes, the market is facing over-production next year, even though prices seem likely to fall.

The launch of a new vanilla product would help mop up some of the surplus production, giving more stability to the market - though one processor said the figures needed to be kept in perspective.

By some estimates, Coca-Cola uses about 200 tonnes of vanilla a year to make Coke. So even if a vanilla Coke generated an extra 10 per cent in sales, it would increase annual vanilla demand by only 20 tonnes - or 40 tonnes if the new drink used twice as much vanilla.

That figure could rise if competitors launched rival vanilla-flavoured products, creating a new product sector.

The positive impact of increased demand, however, could be offset by the threat of civil war in Madagascar, which is causing economic disruption and could again lead to turmoil in the world vanilla market.