Pepper Crop Report 2015
Summary of presentations at ASTA and ESA Annual Meeting
with 6 months forward view until February 2016
Since issuing our 2014 crop report pepper prices have
shown continued volatility. It probably can be argued
that during the last decade pepper price volatility
ranged amongst the highest when compared to many
other agricultural commodities.
Looking at historical data it seems that the current bull
market is lasting significantly longer than during the
previous cycles. Whereas normally we saw cycles
ranging from 7-10 years, the current cycle which started
in 2006-2007, is still making new highs. Considering that
the downward leg usually extends over a period of 3-4
years we probably are looking at a cycle length of close
to 15 years. At least that is assuming that fundamentals
will start to do their work, meaning that higher prices
will lead to higher plantings followed by bigger crops.
One reason for the extended cycle is that global demand
has been increasing especially in the developing
economies in Asia. It is estimated that currently some
40-45% of global consumption takes place in Asia. With
rising incomes food patterns are changing and meat
consumption is increasing and so is also the demand of
spices and pepper in particular.
For various reasons, which are elaborated on later in
this report, the farm community in the producing
countries has found little incentive to invest in pepper
and to expand the areas under cultivation. So supply has
not been able to keep up with this spur in demand.
To ration demand and to bring supply and demand in
balance prices had to increase. Black pepper prices
peaked during June 2015 at an all-time high of $10,900
per ton for ASTA quality. This is 7 times higher when
compared to the lowest monthly average recorded in
July 2005 at $1,560 per ton.
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Production
The 2014 global production is estimated at 409,000
tons, which is expected to increase to approximate
454,000 tons for 2015.
During 2014 Vietnam topped the list with a crop of
155,000 tons, 38.6 % share of global production. Playing
the market leaders role Vietnam set the benchmark for
the global pepper price. Due to unfavorable weather
during the early growing stages the 2015-2016 output
of pepper from Vietnam is forecast lower at 145,000
tons.
Indonesias 2014 crop of black pepper was
disappointingly low at 42,000 tons. With output of
white pepper at 18,000 tons total production did not
exceed 60,000 tons. For 2015 we expect a better black
pepper crop bringing the aggregate black and white
pepper output 2015 crop to around 70,000 tons.
India shrugged off a 6 year decline in production
bottoming during 2014 at 45,000 tons. For 2015 Indias
crop is significantly better at 85,000 ton. Main reason
for this is favorable weather conditions rather than
expansion of area under cultivation.
Brazils output has been fairly stable over the last 10
years fluctuating between 30,000-40,000 tons. For 2015
we expect output to be at the higher end of this range.
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The pepper vine is quite sensitive to soil conditions,
rainfall and temperature during the various growing
stages. In recent years we have heard quite often about
the El Nio and the El Nia effect. Recently released
climatic studies indicate that there is a fair chance of
another El Nio impacting crops in Asia, however to
date we have no indication that pepper production is
affected.
Various reasons can be mentioned why global pepper
supply has not been able to keep up with demand.
Increase in cost of input materials at the farm level
(fertilizer, pesticides, labor, water, etc.), land
availability, investments in new gardens only yield
returns after 3 years, spread of disease due to minimal
crop alternation and high usage on fertilizers,
competing crops like coffee and rubber which also yield
good returns, yield (kilos/hectare) differences between
the producing countries, currency fluctuations, etc..
Urbanization and demographic changes are other
elements that influence pepper production. As the
younger generation looks for employment in the non-
agriculture sector, older farmers, who are generally also
smallholder farmers, move to higher incentive crops.
Not only does this affect the scarcity of spices, it also
negatively affects the environment high intensive
monoculture farm systems cause serious land
degradation, pollution and erosion issues.
As a consequence, the life span of pepper vines is
shortened. This is seen especially in Vietnam, partly due
to a lack of experience combined with the prevalence of
smallholder farmers. Thus, it can be inferred that the
Vietnamese farmers have high, but not sustainable,
yield. As a result, although the yield seems impressive,
much of this is simply replacing dying and diseased
vines; ultimately, the true yield is quite limited.
This whole basket of reasons made that farmers were
less inclined to invest in pepper in order to ensure that
production could keep pace with the rise in
consumption.
However, as mentioned in the beginning of this report
for 2015 we see higher crops in Indonesia and India,
whilst also plantings in Brazil and Vietnam are
increasing. Possibly the first signs that farmers find
incentive in growing more pepper.
Global consumption
Global pepper consumption is estimated at around
400,000 tons and has been increasing steadily. Break
down between regions is available from the chart.
With 1.5-2% per annum the growth in North America
and Europe has been limited. Demographic factors are
fairly stable and consumption patterns only change
slowly. We can clearly see that the growth in
consumption is mainly from countries like India and
China, which are estimated to consume 59,000mt and
49,000mt in 2014 respectively. Population growth and
per capita income has increased triggering a shift in
consumption to protein based foods, like meat.
Growth rate for Asia and the Middle East is estimated
at 3-4%. In a global view consumption growth is 2-3%
per annum.
Worthy of note is that although China is a producing
country their domestic demand has exceeded their
production ability during the past ten years; hence, they
should be viewed as a net consuming country. India at
times needs to import pepper to cover their domestic
needs. However, with favorable weather, India can fill
local demand and still have surplus to export.
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Stock levels
Since 2006 global stock levels have been declining.
However for 2015 we forecast that a surplus of supply
is likely to be recorded. This is largely due to the
increase in production from India and Indonesia.
The increase in global stocks did so far not lead to lower
prices, on the contrary: 2015 pepper prices saw new
highs. Why is this?
Global consumption of 400,000 tons per year translates
in some 33,000 tons per month. We estimate that
current global stock position of 150,000 tons covers 4-
4.5 months of consumption. Considering the fact that in
order to fill the pipeline between origin and the end
consumer some 92,500 tons is needed (for calculation
see table pipeline stocks), a global stock position of
150,000 tons is still tight.
To be comfortable the world needs 8-10 months of
stocks, (about 264,000 - 330,000 tons). So the supply
surplus we expect during 2015 of 20,000 tons is
marginal in view of what is needed to have a more
comfortable supply situation. These low stock levels
indicate a continuation of a period during which supply
and demand is in a tight equilibrium making the market
vulnerable and very much supply driven.
We estimate that production cost of pepper is costing
the farmers between USD2.5-3.0/kg, but the selling
price has been at least 3 times higher than this for many
years. Therefore the farmers financial position has
been strengthening and so has their holding power.
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Furthermore, farmers are using 21st-century technology but still for now will fall short of triggering a bear
to carry out business. Price transparency is common in market.
most farm communities. In Vietnam, there are websites
created and managed by the farmers themselves to 6 months forward view until February 2016
share market information as well as cultivation We have used our statistical database to forecast the
techniques. Through these means, they are successful supply and demand situation during the next six months
at leading the market. to 1 March 2016, which is more or less when the new
crops from Vietnam and India will arrive at the market.
At the other end of the scale, fears that the market may From the table below we can read that exports during
rapidly switch from bullish to bearish encouraged this period are forecast at 140,000 tons against a
industries and other users to maintain a hand-to- consumption requirement of 131,000, suggesting a
mouth buying strategy. surplus of some 8,000 tons. This figure is probably
somewhat higher as new crop volumes are likely to
Pipeline stocks
reach the market before 1 March 2016. Important here
weeks tonnage is to note that for the similar period last year we were
min max min max calculating a deficit of 27,000 tons, hence a difference
shipping 4 5 20,018 25,023 in availability of around 35,000 tons, which may proof
clearing 1 2 5,005 10,009 to be a significant number.
grinder 4 8 20,018 40,036
industry 3 6 15,014 30,027 Exports from Vietnam to Europe are declining because
logistics 1 3 5,005 15,014 of quality issues, which means that off take for
13 24 65,059 120,109 Vietnamese pepper is less. Currency depreciation in the
average pipeline in weeks 18.5 Indonesian Rupiah, Indian Rupee and Brazilian Real may
average pipeline in tons 92,584 improve competitiveness of pepper from those origins
So the tight supply and demand situation and empty undermining Vietnams ability to market their pepper.
pipelines makes that famers, because of their stronger Lastly there is the potential of a good crop in Vietnam
holding power, can exercise control over availability of for 2016, which normally casts its shadow ahead. These
pepper in the world market where spot positions factors can make that the control of the Vietnamese
continue to demand a premium over shipment prices. pepper community over the supply will become less and
This is a scenario in which it is difficult to expect will cause nervousness when holding back supplies from
relaxation in prices even though there is a slight surplus the market.
in supply for the first time in 9 years.
In conclusion we can state that there are reasons to
The above can also be approached by looking at the expect pepper supply to improve especially during the
global stock ratio, which is defined at global stocks coming 6 months and that we may have seen the peak
divided by global consumption. From the graph Global in prices during June of this year. The fundamentals
Stock Ratio we can see that this ratio is likely to start to work again as the price incentive for farmers is
improve by a few percentage points during 2015. The likely to trigger an increase in the cultivation area.
relationship between price and stock ratio is obvious. A However, at the same time we are still confronted with
few percentage points increase in the global stock ratio low global stocks and empty pipelines making the
should therefore translate into a minor relaxation of the market vulnerable to price swings.
global pepper price (expressed as average for the year),

Period Sep-Feb Scenario 1 BOS (*) Production Domestic Imports Exports YTD Export Export Stock
100% stock for Mar delivery Stock (**) Consumption From harvest to 31 Aug
availability Sep-Feb 16 01-Mar-16
Vietnam Mar-15 28,363 139,000 5,810 9,000 107,000 63,553 36000 27,553
Brazil Aug-15 5,761 45,000 6,835 - 4,000 39,926 30000 9,926
Indonesia Jun-15 12,512 70,000 10,391 - 13,500 58,620 40000 18,620
India Jan-15 3,179 85,000 59,329 26,500 14,000 41,350 10000 31,350
Malaysia Apr-15 9,018 24,000 8,179 - 6,200 18,639 6000 12,639
China Apr-15 9,345 38,000 49,137 16,000 1,000 13,207 3000 10,207
Sri Lanka Apr-15 1,534 30,000 3,617 - 10,333 17,583 8000 9,583
Other 8,634 22,000 13,113 - 5,100 12,421 7000 5,421
Total 78,345 453,000 156,413 - 161,133 265,299 140,000 125,299

(*) Beginning of Season Demand non-producing countries 131,879

(**) nett of losses to white conversion Surplus/Deficit 8,121

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