Why am I focusing on pepper from Vietnam?
Firstly, pepper imports from this country dominate the Polish market. Secondly, the Vietnamese pepper industry as a spice accounts for 40% of production and 60% of global market share. According to VPSA(The Vietnam Pepper and Spice Association), the size of the global pepper market is worth around US$5.4 billion and is expected to reach an average growth rate of around 20% during the period 2024-2032.
Current Pepper Price Growth (June 2024)
Since the end of April 2024, the price of pepper in Vietnam has risen sharply, reaching nearly VND150,000 (US$5.90) per kilogram in early June. The pepper price increase surprised traders, surpassing the prices of coffee and cocoa. In the first five months of 2024, pepper became almost 40% more expensive. Even more shocking is a comparison of pepper prices from June 2023 to June 2024 - an increase of 112%.
Reasons for the Increase
- Reduced Production and El Nino: The El Nino phenomenon and the reduction of pepper acreage in favour of more profitable crops such as durian and coffee have reduced pepper production. As a result, pepper production in 2024 has dropped to around 160,000 tonnes, compared to a peak of 300,000 tonnes in 2015. The chairwoman of the Vietnam Pepper and Spice Association(VPSA) said that the price of pepper has steadily declined for many years, causing many pepper-growing households to halve their cultivation area, many to grow the more profitable durian fruit and other crops with higher economic value, causing the supply to fall.
- Increasing Demand: Juxtaposed with rising demand in the European, US and Chinese markets, limited supply has fuelled price increases. Interest in pepper is also growing in countries such as Pakistan and Korea. In addition, the surge is cumulated by the desire to stock up by companies that had previously contracted pepper sales prices both in Poland and around the world.
- Speculation: Speculators wait for such situations and can then artificially raise pepper prices, creating a false shortage in the market. Such actions increase upward pressure on prices, which in turn affects the difficulties of companies in purchasing the raw material and makes it difficult to make a realistic prediction of pepper prices for the coming months and years.
Forecasts and Challenges
- Long-term Price Increase: Some industry experts in Vietnam predict that pepper prices may reach new peaks, reaching VND350,000 - 400,000/kg (US$13.77-15.73/kg) in the coming years. High prices could continue for the next 10 years, with periodic adjustments. In my opinion, this is a pessimistic scenario and much depends on factors that we cannot predict today.
- Risk of Speculation: Concerns about speculative activities may artificially raise prices, affecting market stability.
- Vietnam Pepper and Spice Association (VPSA) estimates: The VPSA estimates that pepper production in Vietnam in 2024 will decline by 10% compared to the previous year, reaching the lowest level in the past five years. Many farmers cut down pepper trees when the price dropped to around VND40,000/kg (US$1.57/kg) four years ago to grow more profitable crops such as durian and coffee.
- Logistical constraints: Difficulties related to transport and container availability may hinder exports, especially in the context of global shipping tensions - making predictions in the pepper market even more difficult.
Global pepper production in 2024 is expected to reach around 465,000 tonnes, down 1.2% year-on-year. Meanwhile, global consumer demand for pepper could reach 529 000 tonnes, exceeding production by 64 000 tonnes. Draw your own conclusions.
- Rising pepper prices - watch out for adulteration: The rapidly increasing price of pepper is becoming a breeding ground for dishonest companies who mix ground pepper with, for example, corn starch. The adulteration procedure becomes more profitable as prices rise. Product specifications should be read carefully (terms such as mix or blend should arouse vigilance), suppliers should be selected carefully and, above all, suspiciously low prices should be avoided. In Poland, counterfeiting food products is a criminal offence.
Summary
Rising pepper prices in Vietnam are already being felt in Europe. In the first instance, the increases are reaching importers, producers and distributors of spices. It will take some time before consumers feel them. However, dynamic price changes and market speculation call for caution and a strategic approach on the part of buyers, importers and exporters to ensure a stable development of the pepper sector. Careful purchasing and rational inventory management will be key in the coming months.
