Domestic white pepper prices sink
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Kuching Grade 1 white pepper dropped to RM38,000 per tonne on Friday (Sept 2) based on Malaysian Pepper Board (MPB) published price. The slide was particularly steep in the past two months, from RM48,500 per tonne in early July.
For Kuching Grade 1 black pepper,its price has retreated to RM25,000 per tonne from a record high of RM30,000 per tonne or a drop of nearly 17%.
The white and black pepper soared to RM50,000 and RM30,000 per tonne respectively in September, last year in a spectacular six-year rally, the longest in history, riding on the growing global demand for the spice that outpace supply. The run-up began in 2009 when the white and black pepper were hovering around RM11,300 and RM6,500 per tonne levels respectively.
And what has caused the recent pullback in the prices?
The correction in domestic pepper prices, according to a MPB senior official, comes ahead of the harvesting of new crop in Indonesia,the world’s second largest producer.
“Indonesia has begun to harvest the new crop which will enter the market soon. Indonesia is a key producer of white pepper,” the official told.
Last year,Indonesia produced some 71,500 tonnes of the golden crop against Vietnam’s (world’s No 1 producer) 130,000 tonnes. Other key producing countries,which are International Pepper Community (IPC) members, are India (65,000 tonnes), Brazil (41,500 tonnes) and Malaysia (28,000 tonnes).
Due to the recent El Nino weather phenomenon,the market has anticipated Indonesia’s new crop output to be affected.
The official said another reason for the drop in domestic white pepper prices was due to an anticipated increase in white pepper output during the traditional September-October period. Sarawak, which contributes some 95% of the country’s pepper production, is currently into the tail-end of harvesting the new crop,which normally begins in May.
“The run-up began in 2009 when the white and black pepper were hovering around RM11,300 and RM6,500 per tonne levels respectively.”
(Black and white pepper are processed differently. Pepper berries are harvested when ripe and after sun-dried,the outer layer will turn black and become black pepper. White pepper is the result of the outer layer being removed, normally after soaking in clean water in the river and then dried, leaving only the inner seed.)
Due to the tedious processing procedures for white pepper,most farmers prefer to produce black pepper. Only some 20% of Malaysia’s pepper production are in white pepper.
The official said despite the softening of pepper prices of late,there is no cause for alarm.
According to IPC weekly price bulletin (August 22-26),with the exception of Malaysia,pepper prices at source markets remained stable,even increased in Sri Lanka. In India,local price of Malabar black increased almost daily during the week.
The bulletin said a marginal decrease of local price in dollar terms seen in Bangka and Lampung Indonesia was due to the weakening of local currency against the US dollar.
“The domestic white and black pepper prices are still firm at current levels even though they have come down quite a bit. The drop is temporarily and the prices will recover,” added the official,whose reason is that global supply remains tight and is unlikely to increase significantly in the near future.
Based on IPC’s 2016 projections,global consumption for the year is about 463,000 tonnes against production of 414,000 tonnes,resulting in a supply deficit of 49,000 tonnes. Of the forecast production,only 312,000 tonnes are available for export against the export market’s requirement of 320,000 tonnes.
In 2015,,global consumption was estimated at 439,282 tonnes against production of 407,158 tonnes. World demand for the spice grows at around 4% per annum against production increase of merely 0.7% per annum.
Questions & Answers
Q.What is the primary reason for the recent drop in domestic pepper prices?
What is the primary reason for the recent drop in domestic pepper prices?
The correction in domestic pepper prices is largely due to the upcoming harvesting of new crops in Indonesia, the world's second-largest producer. An anticipated increase in white pepper output during the September-October period is also a contributing factor.
Q.How do recent domestic price declines compare to other pepper markets?
How do recent domestic price declines compare to other pepper markets?
While domestic prices have fallen, pepper prices in other source markets, with the exception of Malaysia, have remained stable or even increased, as seen in Sri Lanka and India. A decrease in Indonesia was linked to local currency weakening against the US dollar.
Q.What is the expected long-term outlook for global pepper supply and demand?
What is the expected long-term outlook for global pepper supply and demand?
Global supply is projected to remain tight, with a forecast supply deficit of 49,000 tonnes for 2016. World demand for pepper is growing significantly faster than production, suggesting prices are likely to recover despite recent drops.
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