The Western Ghats in its southern course embodies some of the world-famed plantation crops, and pepper is one among them. The regions around Southern
Karnataka, the Nilgiris of Tamil Nadu and the hilly tracts of Kerala produce the world’s finest quality pepper, which fetches a premium compared to the ones
produced from Vietnam and Indonesia. Adorned by multiple titles like “The Black Gold” & “The King of Spices “, the significance of pepper amongst globally
traded commodities is unequivocal. The global pepper market is largely dominated by Vietnam which contributes over 42% of the world’s pepper production and the largest share in exports-by country. The increase in new plantings in Vietnam during the last three years hints at a possible higher supply over next few years.
Meanwhile, the Indian pepper market is striding through a tough phase wherein the price for the renowned spice has fallen by more than 30% owing to the surge in supply mainly from Vietnam. The quantum of pepper output from Vietnam, which is expected to be around 2, 15,000 MT is significantly higher than the average of 1,50,000 MT expected.
India’s share of pepper output continues to remain stable at around 55000 – 65000 MT per annum, competing with Indonesia to retain its position next to Vietnam. The output from Cambodia and Brazil seems to have a significant impact on the global supply of the commodity. Cambodia has piped many of the prominent players in the market to gain significance in the global trade map of pepper. The output from Cambodia has increased eight fold since 2013, as per the Undersecretary of the Ministry of Agriculture pointing at the soaring prices that led to the same. From merely a 3000 tonne crop to the current day 20000 tonne output, Cambodian farmers have rapidly converted much of their land to cultivate pepper and investments into pepper cultivation soared with the prices turning lucrative.
Global Pepper Scenario
The surge in global production resulted in prices plummeting from USD 10,908 to the levels
below USD 4,050 per tonne. If we go with the past experiences, prices can fall further and test new lows. But we believe that the current slump in prices have cautioned the producers and exporters against significant loss in revenue. So we expect that the stocks are likely to be released gradually until the prices stabilize. Let us have a look at the global production scenario. As we can observe from the data demonstrated above, the productions from the South-East Asian Nations have spiraled by an enormous amount. While Vietnam pumped up the output by 35% and above, Indonesia increased the output by close to 22%. The significant surge in production was observed from Cambodia where the output rose by 67% to 20,000 MT. The majority of the quality pepper finds its way to Europe and the U.S, which is the prominent market for close to 30% of the world’s pepper output. In the past few years, the consumption of pepper has remained in close quarters with the quantum produced, which keeps the prices stabilized. But the 2016-17 output seems to outweigh the demand by a higher margin, which is expected to pressure the prices. We expect the global demand to stay afloat at the present levels with a maximum upside of 4,10,000 MT while the supply should exceed the demand by 81,000
MT. While the supply has increased by 22% compared to that of the previous year, the demand is expected to rise by mere 2% which could impact the prices significantly. Vietnam planted more pepper vines eyeing the profits earned in pepper compared to coffee.
Back in 2015, some of the major coffee growing regions like Daklak and Gia Lai devoted higher area for pepper. The acreage rose to 16,000 ha as opposed to the intended 15,000 ha of pepper vines by 2020. The sharp plunge in prices has put the farmers in a fix with many of them having converted their coffee growing regions to pepper in haste. Improper farmland management has resulted in poor quality crops in the region, which is dragging the entire pepper industry down. But the pepper exports from Vietnam have also witnessed a rise owing to the lower price for the commodity. The exports to the neighboring Thailand have also registered a y-o-y increase of 49.60%. The conditions of supply, demand, transportation, storage, and processing are main causes of price fluctuation, which at times are very wide and violent. The prices of the commodities emanating from the Futures market may help farmers/producers to plan their production and hedging the price risk.
The rapid expansion of pepper cultivation and excessive use of chemicals in farms have taken atoll on Vietnamese pepper. The Sanitary and Phytosanitary (SPS) measures are not in place, which forces companies to import raw pepper of higher quality from Indonesia and Cambodia in order to process and export pepper from Vietnam. The huge quantum of produce that Vietnam continues to add to the global supply threatens to drag down the prices. Prices may slip further if farmers continue to sell their produce owing to the fears of further fall. However, the Vietnam Govt. has urged the farmers to desist from panic-selling and wait for the prices to stabilize. Indonesia’s pepper output is set to rise till 63,000 MT, up by 14% from the previous season. The previous season crop was pegged at around 65,000 MT but the unfavorable climatic conditions took a toll on the output of the crop. Though prices are ruling low this season, the export market demand will continue to support pepper from Indonesia. In Cambodia, farmers switched from cassava and rubber to growing pepper because the returns on pepper seemed to be more lucrative than other plantation crops. Tbong Khmom province, the country’s eastern province that shares a common border with Vietnam, contributes to about 75% of total production of “Kampot” pepper. A major share of Cambodia’s black pepper is exported to Vietnam, for re-exports. Cambodia is actively pursuing all policies to increase the
export sales of Kampot pepper. Meanwhile, Brazil has also increased its pepper output with close to 55,000 MT of production last season. The production from Brazil is also set to rise given the rise in area devoted to pepper vines, while Sri Lankan production of black pepper has remained within 20,000 MT.
Indian Black Pepper:
Indian black pepper market was ruffled by the sharp decline in prices, of about 28%, sending farmers and traders into dismay. The Indian pepper demand weakened overseas as the importers shifted to Vietnam pepper. Even while Indian pepper traded at USD 9,000/MT,Vietnam succeeded in exporting pepper at around USD 5,250/MT which hurt the Indian exports. Meanwhile, Indian spice processors also imported large quantum from Sri Lanka and Vietnam as the prices ruled low. The reports of pest contamination on imported pepper from Vietnam had resulted in a temporary ban that supported the prices, which was lifted sooner dragging the prices further. India’s 65% of pepper imports are from Vietnam which affects the local pepper prices. The production of pepper rose by 24% to 56,000 MT in 2016-17 which also boosted the domestic supplies of the spice. We expect the pepper production in India to be around 55,000 Mt in the forthcoming season, which will keep the prices under check. The global glut in the pepper market will also pressure the prices. Good monsoons in the southern state of Kerala and Karnataka are expected to provide a fillip to the production.