Indonesia forms pepper cartel with Vietnam, Brazil

The world's largest producers of black and white pepper - Indonesia, Vietnam and Brazil - have joined hands to form a consortium to control the global pepper market as high volatility in Indian futures over the last three-four months has upset the market.

These nations together control 65-70 per cent of the world's global pepper production. Representatives of Indonesian Pepper Association, Brazilian Pepper Exporters Association and Vietnam Pepper Association will meet in Indonesia between June 25 and 28 to discuss "joint marketing strategies and plantation surveys". This consortium has been active for a couple of months as India had been slashing price of the ASTA grade pepper considerably.

Currently, India has the lowest price tag across the globe and it reportedly has been affecting exports from these countries, especially Vietnam. In the last fortnight alone, India has sold 1000 tonnes of pepper to Europe, USA and Canada in the range of $3650-3725 a tonne.

Vietnam, almost on a steady note, has been quoting $3850, while Indonesia quotes $3900 and Brazil's indication prices are $3700 for B1 and $3800-3850 for BASTA. Malaysia quotes the highest tag of $4200 in the current international market. According to the experts, Vietnam is still quoting higher tags because of the drop in global and domestic production of pepper.

Compared with 2006, production would drop 25-30 per cent resulting in various countries quoting much higher tags than that of 2006.

During January-April 2007, exports from Vietnam had dropped by 32 per cent compared with the year-ago period. According to a section of Kochi-based exporters, Vietnam's total stock would be around 45,000 tonnes.

The world requires 20,000-25,000 tonnes of pepper on a monthly average. And with estimates of lower production in the next season, Vietnam's stock would be much lower than previous years. Even after reducing the price for ASTA to $3850 from $4000-4100, it could not garner substantial global demand. The major importers have adopted a wait-and-watch strategy, hitting exports of major producing nations.

According to a report of the International Pepper Community (IPC), Malaysia's April exports had dropped to 836 tonnes from 960 tonnes in April 2006. Exports in January-April had dropped by 16 per cent to 3649 tonnes. Meanwhile, Indian futures have staged a comeback today expecting a positive decision in a meeting between FMC and the ministry of consumer affairs (see box).

The prices have surged by over Rs 400 a quintal on an average in all the contracts. Major export houses today procured pepper in large quantities anticipating an appreciation in prices in the coming days. Market sources expect the rally to continue once the position limit for futures trading will be withdrawn.