Reduced global production is poised to push pepper prices higher

KUCHING: A brighter global pepper market is anticipated in 2024 as a further drop in production volume in the major producing countries will drive prices of the spice higher.

Adverse weather condition caused by the El Nino phenomena is affecting pepper yields and harvest, according to leading pepper trading firm Nguong Aik (Kuching) Sdn Bhd director William S.C. Yii.

He said the “very dry” weather experienced in Brazil, one of the key’s world pepper producers, for example, is threatening the survival of pepper crop.

“There is an expected global pepper production shortfall in 2024 because of climate change and not much new plantings by major producing countries in recent years,” Yii told StarBiz.He said Vietnam, the world’s No. 1 pepper producer, which contributes about 40% of global supply, is forecast to further cut production to between 180,000 tonnes and 200,000 tonnes in 2024 from 220,000 tonnes in 2023.

The Vietnam Pepper and Spices Association had reported that recent prolonged heavy rains in the country’s central highlands and southern provinces had brought unexpected challenges to pepper growers.

This is causing concerns about the yield and even potential failure for the next crop harvest in 2024, the association said.

The substantial rainfall in August had hit Binh Phuoc province, a key area for black pepper cultivation in Vietnam.

Yii said that in 2023, Vietnam exported some 260,000 tonnes of pepper, including from inventories built-up over the years.

The increase in exports has depleted Vietnamese black pepper stock before the country starts to harvest its new crop during the Chinese New Year period in February.

Pepper production volume in Vietnam has been on a downtrend in recent years due to sluggish prices, and because some pepper farmers have shifted to planting cocoa to ride on the soaring coffee prices due to food inflation.

Coffee prices have remained high for the past two years.

Indonesia’s pepper production volume in 2023 is estimated at 55,000 tonnes, down 15% from that of 2022.

This reduction can be attributed to Indonesian black pepper growers also shifting towards much lucrative crops such as cocoa.

In Sarawak, Yii said 2023 pepper production volume also shrank to an estimated 17,000 tonnes from 19,000 tonnes in 2022. Sarawak accounts for more than 95% of Malaysia’s pepper output.

He said some pepper farmers in Sarawak have switched to planting more lucrative crops like oil palm and durian as pepper prices were low in recent years.

“It is easy to cultivate oil palm, which provides monthly income (from sales of fresh fruit bunches) unlike pepper which growers can harvest only once a year,” he said.

In 2023, domestic white and black pepper prices recovered by 3% and 11%, respectively, from 2022.

This is following a prolonged consolidation after white and black pepper prices hit their all-time high of RM50,000 per tonne and RM30,000 per tonne, respectively, in 2016.

“Based on Malaysian Pepper Board’s daily published prices last Friday, Kuching Grade 1 white pepper fetched RM23,500 per tonne (RM22,900 per tonne at end-2022) and black pepper RM14,350 per tonne (RM12,900 per tonne) or an increase of RM600 per tonne and RM1,450 per tonne, respectively.

“As there may be a global supply shortfall in 2024 due to reduced production by major producing countries, pepper prices are expected to be on an uptrend, rising gradually from the second half of the year (after the release of Vietnam’s new crop into the market in first half of the year).

“After Vietnam, the new crop harvest will take place in Malaysia, Indonesia and Brazil. The next round of pepper price uptrend is expected to take two to three years to peak,” predicted Yii.

He said as the prices of most commodities like rice and sugar have risen of late, there is a strong possibility that pepper will follow suit.

According to Yii, it was quiet trading for Sarawak Pepper (a Malaysian brand) in the international market in 2023, as the spice fetches a premium of between US$800 and US$1,000 per tonne due to its globally recognised superior quality.

“So, Sarawak Pepper is expensive internationally as buyers including those from China, the main pepper consuming country, are turning to cheaper pepper like from Vietnam.

“Traditional and regular buyers like those from Japan are continuing to import Sarawak Pepper.”

Yii said as Vietnam has improved on its pepper quality with the help of technology, this has gradually narrowed the price gap between Vietnam and Sarawak Pepper.

This will help to boost the sales of Sarawak Pepper globally.