Currently, pepper prices in the market are continuously decreasing and are at around 120,000 VND/kg, down 30% compared to mid-2016 and equal to the price of August 2011. Why are pepper prices so low? How much will pepper prices fall? And, what are pepper growers thinking?
Is supply exceeding demand?
In December 2016, the Vietnam Pepper Association (VPA) had a team to survey pepper production in pepper growing localities to forecast pepper production in the 2016/2017 crop year. From the collected data, VPA forecasts that Vietnam’s pepper production is estimated at about 180,000 tons, up at least 15% compared to the previous crop year.
In recent years, Vietnam has been the world’s largest pepper exporter, accounting for 50% of global trade. Therefore, as long as Vietnam increases production, immediately after that, pepper prices on the world market will tend to decrease. Pepper prices have fallen in recent years, according to Ms. Nguyen Mai Oanh, Vice President of VPA, due to the weakness of supply exceeding demand.
In addition, the falling price is also partly related to “psychological factors”, making businesses hesitate to buy and store pepper, which comes from the recommendations of the European Commission (EC).
Psychological factors from technical barriers
According to the VPA, although Vietnam has been the world’s largest pepper exporter for many years, the quality of pepper is also becoming a barrier when major markets are adding “technical barriers” to the food industry. imported pepper products, in which mainly the problem of pesticide residues. This is most evident in the EU market, an important market for Vietnamese pepper.
Specifically, the current obstacle is the problem of metalaxyl chemical residues on Vietnamese pepper exports. Previously, for pepper exported to the EU market, the maximum allowable amount (MRLs) for Metalaxyl chemical was 0.1 ppm, but in 2017, the European Commission (EC) is proposing to apply the permissible MRLs to only 0 .05 ppm. If this proposal is approved, Vietnamese pepper will face difficulties when exporting to Europe.
In a letter to the VPA of the European Spices Association (ESA) at the end of January 2017, ESA said that in 2016, they analyzed 799 samples of Vietnamese black pepper imported into the EU, only 17% of the samples contained maximum residue less than 0.05 ppm. Thus, if the EC’s proposal to apply the allowable MRLs for imported pepper is approved, more than 80% of Vietnam’s pepper exports to the EU will face difficulties (in 2016, Vietnam’s pepper exports to the EU is 40,000 tons, equivalent to 23% of exported pepper).
That said, just one adjustment in the maximum allowable amount of MRLs, Vietnamese pepper will immediately face difficulties. According to some pepper exporters, the EC’s desire to adjust the maximum allowable amount of Metalaxyl from 0.1 ppm to 0.05 ppm is a technical barrier rather than a concern about consumer health. use, because with a Metalaxyl content of 0.1 ppm is said to ensure consumer health without having to drop to only 0.05 ppm.
In another market, the US, where pepper exports are similar to Europe, it is likely that exporters will also have to receive unpleasant news. According to VPA, the US management agency also said that it is preparing to issue a series of new regulations on the quality requirements of imported agricultural products, including pepper.
Currently, businesses and importers are in a state of waiting to see if the EC’s proposal is approved or not, so the move of domestic exporters is to reduce the transaction volume. This is shown when Vietnam’s pepper export volume in January 2017 was only 8,000 tons, down 37% over the same period in 2016. Therefore, according to some experts and businesses, pepper prices decreased. partly due to psychological factors.
Should speculation?
Pepper is an agricultural product and like coffee, pepper has been traded on commodity exchanges in India and possibly in Vietnam in the near future, that is, pepper is being traded in two markets. physical transaction and paper transaction.
Many businesses and farmers in Vietnam – the capital of pepper in the world, often choose to trade real goods. The question is, with the current price reduction, how should businesses, agents, and pepper growers act?
Usually, farmers’ decision to sell is based on the forecast that pepper prices will increase or decrease compared to the current price. In this case, stakeholders forecast that pepper prices will continue to fall in the near future, and so, as a rule, growers will sell pepper to avoid losses. On the contrary, if pepper prices are forecast to recover, growers and especially agents will buy into reserve, speculate and wait for the price to rise and sell for a profit.
Theoretically yes. As for the reality in Vietnam, how is the pepper market at this time? Is there a sell-off or is there a sentiment of keeping the line waiting for the price to rise?
Ms. Nguyen Mai Oanh said, currently, pepper growers are keeping pepper for sale, so many exporters want to buy but cannot. Thus, pepper growers still believe that in the near future, pepper prices will increase again. While the VPA side has the opposite forecast because of factors such as domestic output and technical barriers of importing countries.
According to VPA, farmers holding back from selling when prices are falling may be an “unwise” decision because there are no market signals to ensure pepper prices will rise again.
Who will be right? Time will have the best answer.
Follow Vu Ha (baochinhphu.vn)
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