Could Black Pepper Prices Be Returning to Normal Levels?

pepper sommai/Adobe Stock

Spend Matters welcomes this guest post from Jara Zicha, market analyst at Mintec.

Global black pepper prices more than tripled between 2009 and 2015, reaching record levels. In my previous article, “Pepper — The Return of Black Gold?,” I explained that the increase in price was attributed to dwindling stocks and surging demand in Southeast Asia. I am pleased to say we may have finally reached the tipping point in the market. After half a decade of price increases we might have finally hit the price ceiling; pepper, prices are falling this year, with a firm intent to continue to drop. So, what broke the marketplace and which factors are currently in play?

Vietnam is the main pepper producer (the one to watch) and, along with Brazil and Indonesia, it is a major supplier for the U.S. market. Production in Vietnam by far exceeds volumes produced in other origins, giving it the largest influence over global pepper prices. Prices in Vietnam have fallen by approximately 20% since the start of this year.

Pepper production in Vietnam for 2016 is estimated at 150,000–160,000 tonnes, up about 18% y-o-y, while output in other major producing regions has also been reasonable this year, adding downward pressure to prices. Both Brazilian and Indonesian farmers were hit badly by El Niño conditions; however, production losses are much smaller than initially feared due to increased planting acreage. Only India has seen a substantially smaller crop in 2016, due to an erratic monsoon season.

Over the past 10 years, the market generally experienced a supply deficit, which saw global stocks plunge to around 110,000 tonnes in 2016 from over 300,000 tonnes in 2006. However, with signs that India and Vietnam are heading for bumper crops in 2017, and output rising rapidly for some smaller producers, such as Cambodia, there is a potential that supply could exceed demand significantly, as we saw in 2012 or 2015.

The rise in production is mainly attributed to an increase in the areas planted, with expansions in Vietnam, Indonesia, Brazil and Cambodia. In Vietnam, the production area for pepper last year was estimated at 85,000 hectares. This year, the forecast is up 18% y-o-y at 100,000 hectares. This is the substitution effect whereby farmers switch to pepper, ignoring some of the less well performing cash crops, such as rubber. As production increases, we may eventually see stocks building up again and prices moving down to more reasonable levels. While the household savings from lower black pepper prices might not be enormous, every little helps.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.