Although currently the market is showing positive signals on both domestic and export pepper prices, the big drag still comes from the high increase in logistics costs. The Pepper Association said that with the current situation of high rates, the pepper industry will lose customers to competitors.
Pepper prices are forecasted to continue to increase thanks to many supportive factors
A series of positive factors are present in the pepper market in the near future and promise to bring the pepper industry out of the shadow of the crisis lasting many years in a row. Currently, pepper prices are fluctuating between 74,000 and 79,000 VND/kg, which is twice as much as at the beginning of the year.
The average export price of pepper in the first 7 months of the year was about 3,291 USD/ton, up 51% over the same period last year.
Recently, the Import-Export Department (Ministry of Industry and Trade), forecast that the world pepper price will be supported due to a temporary supply shortage from Vietnam. High freight rates and the shortage of empty containers make a large amount of export pepper still stagnate at southern ports of Vietnam.
Some comments expressed concern that the pepper supply would be offset when Indonesia, China, Malaysia, Brazil and Cambodia entered a new harvest in July and August.
However, output in some of these countries is forecast to decline. According to the Ministry of Agriculture and Rural Development, in Indonesia, this year’s pepper harvest takes place in July and August, but production is expected to decrease by more than 20% compared to the 2020 crop.
In Brazil, pepper production is forecast to decline sharply in 2021 as the country is likely to face the most severe drought in 91 years during the period from June to September.
As for Vietnam, which accounts for half of the world’s pepper supply, the Vietnam Pepper Association (VPA) forecasts that output will decrease by about 25% due to the impact of weather and the shrinking planting area due to climate change. In recent years, pepper prices have been low, people have left their gardens.
Besides the reduced supply, demand in the US and European markets is also gradually increasing as countries are easing social distancing.
According to VPA data, the US is the largest pepper importer of Vietnam, accounting for 22% of the export volume of this item. Europe ranked second, after China accounting for about 13%.
Proportion of Vietnam’s pepper exports to 3 main markets in terms of volume in the first 7 months of 2021. (Data: VPA, Graphic: US)
Export turnover to these two markets increased by 5-7% in the first 7 months of the year. Therefore, pepper prices in the third quarter were supported by both factors: a more active consumption market while the supply in major countries was shrinking.
In the first 7 months of the year, pepper prices continuously increased so that although the export volume decreased by 1.3%, the turnover increased by 50% compared to the same period last year, reaching 599 million USD, according to the data of the Ministry of Agriculture and Rural Development. Rural development.
Pepper exports in the first 7 months of 2021. (Data: Ministry of Agriculture and Rural Development, Graphic: H.A.)
High logistics costs may cause Vietnam to lose the market
Although the market is currently showing positive signals on both domestic and export pepper prices, the big drag still comes from the high and unstable logistics costs.
According to VPA, the sea freight route to the US and EU, two of the three largest consumption markets in Vietnam, has the most galloping and unusual freight rate increase with an increase of about $1,500-2,000 for a container of 40. feet every 2 weeks.
In fact, the US market always buys goods with CNF (price includes goods and freight), so Vietnamese businesses will bear the risk when freight rates change.
The term of the delivery contract always ranges from 1 month or more. Businesses can be proactive about the source of goods, but with the transportation stage, the opposite is true.
However, freight rates to the US and EU increased continuously, fluctuating every 2 weeks and the increase was unannounced, sometimes it spiked.
Compared to the beginning of 2020, freight to the EU increased 12-13 times to 11,000 USD for a 40-foot container. Shipping costs to the US also increased 5-6 times to 13,500 USD.
VPA said that the US and EU have switched to buying pepper from Brazil because the quality of pepper is not too different from that of Vietnam and most importantly, the shipping cost from Brazil to the US is only 1/3 of that from Vietnam and from Vietnam. Brazil to the EU is only 1/10 of that from Vietnam.
“With the current situation of freight rates increasing continuously and there is no downward trend as at present, the Vietnamese pepper industry will completely lose its competitiveness in the US market. VPA affirmed that the risk of losing the key market to competitors is very large, “said VPA.
In addition, the Ministry of Agriculture and Rural Development has also warned that the complicated developments of the 4th wave of COVID-19 will affect Vietnam’s pepper exports in the near future. Meanwhile, importers have shifted their pepper supply structure to suppliers from Indonesia, Malaysia, Sri Lanka and Cambodia.
According to VietnamBiz
