Global pepper prices have peaked around $0.61, or Rs25, a kg in sync with a cycle that sees prices peaking every seven to nine years, but India has remained largely unaffected by this because of the pattern of cultivation in the country and a large domestic market (60-70% of the pepper grown in the country is consumed within its borders).
Most countries that grow pepper cultivate the crop extensively in one area. In India, pepper is cultivated widely. That means when the pepper price cycle is at a low, the land devoted exclusively to the spice in other countries is used to grow other crops. In India, where pepper is a homestead crop (which means it is grown with other crops), this does not happen and the spice continues to be cultivated.
That explains why, while Indonesia’s pepper production has halved over recent years to less than 15,000 tonnes, India’s is still a respectable 50,000 tonnes (down from 70,000-80,000 tonnes a few years ago). The disadvantage of reducing production when prices are down is that output continues to remain low when the prices rise.
According to B. Sreekumar, deputy director of the government trade promotion body Spices Board, the pepper price cycle has peaked. He said this would trigger higher interest in pepper cultivation and that, in turn, would raise production in the next two to three years.
Sreekumar, who was till a year ago an economist with the International Pepper Community (IPC), the Jakarta-based inter-governmental organization of pepper-producing countries, said the pepper price cycle is based on the fundamentals of the production-supply position across the globe and the carry-forward stocks of various countries.
According to Siby K. Thomas of AVT McCormick, a spices firm, there has been a depletion of stock carried forward every year across the globe. IPC estimates that pepper production declined from 300,000 tonnes in 2005 to an estimated 218,000 tonnes in 2007. But while a carry-forward stock of 90,000 tonnes in 2005 helped the industry in 2006, the carry-forward stock in 2006 was a mere 20,000 tonnes. That number isn’t adequate in case there was a natural disaster in any pepper growing area.
People in the pepper trade said that in anticipation of a price rise, the US had bought enough of the spice to cover its requirements till September. The US will need pepper for the last quarter, and there is demand from the European Union to be met, so Indian pepper farmers and traders are holding onto their stock (pepper can be stored for years).
With futures trading in pepper catching on, the warehouses attached to commodity exchanges have some pepper lying around too. Both these sources will help India meet global demand, say people in the trade.
India, with its globally-accepted Malabar Grade (MG) of pepper, continues to remain a major player in the global pepper market, which, until 1992, had other top contenders such as Indonesia and Malaysia. The price of pepper crashed to $0.26 a kg in 1992, close to the 1971 level of $0.24, prompting Indonesia and Malaysia to give up pepper cultivation.
Indonesia and Malaysia had started cultivating oil palm as an alternative. And in Indonesia, large tracts of land on which pepper vines were cultivated were used to mine for tin. Tin fetched about $8,000 a tonne in contrast to the then prevailing pepper price of $3,000 per tonne.
Vietnam challenged India’s dominance in the global pepper market by taking to pepper cultivation in a big way after the price peaked to $1.16 per kg in 1999. From hardly 30,000 tonnes in 1999, Vietnam produced 1.2 lakh tonnes in 2005; it is expected to produce 90,000 tonnes in 2007.
Pepper producing countries are also seeing a shift from black to white pepper. This is done by soaking the pepper in water for a few days and peeling its skin.