The Hindu Business Line : Pepper prices rule high on tight supply in Vietnam

Kochi April 8 If the current market trend in Vietnam is any indication, the world pepper trade might face a similar situation of 1997 when the prices of the commodity shot up to $4,500 a tonne.

Unlike in the past, there has not been any selling pressure seen in Vietnam even after the harvesting said to have begun in February last and when the country's domestic consumption is negligible.

Almost the entire world market players have been waiting for Vietnam pepper to arrive in the market right from November last. But, contrary to expectations it has not yet happened.

Speculations

The current situation has given rise to speculations. Some say the growers who have high returns from Coffee and rubber do not want to sell their pepper now. Others say that Vietnam crop is less this year.

According to Vietnam trade sources contrary to the official estimates of one lakh to 1.1 lakh tonnes the output might be around 90,000 tonnes and the bullish estimates might put it at 80,000 - 83,000 tonnes.

There has been a decline in Vietnam output in recent years, they said, due to diseases such as foot-rot and unfavourable weather conditions.

Drop in output

The production that was at 1.3 lakh - 1.4 lakh tonnes in 2003 has dropped 1.25 lakh - 1.3 lakh tonnes in 2005 and to 1.05 lakh - 1.1 lakh tonnes in 2006 and, hence, this year it might be 90,000 - 96,000 tonnes, they claimed. Besides, Vietnam has resorted to produce white pepper since 2005 because of the low processing cost and high prices for it in the world market. To produce 20,000 tonnes of white pepper it needs around 27,000 tonnes of heavy black pepper. In that case the black pepper available for export might come to 65,000-70,000 tonnes, a drop of 30,000 tonnes from that of last year.

Add to this, they said to have no carry over stock also this year.

The Vietnamese authorities had late last year told their farmers to hold back stocks at the beginning of the new season so as to avoid sharp fall in the prices. The farmers adhering to this advice are said to be holding their produce and that in turn has pushed up the prices by about 20 per cent in the last 10 days.

Sellers' market

Thus, it has become virtually a sellers' market putting the buyers who had been waiting for long for the arrival of Vietnam pepper in a dilemma.

According to the sources a few big traders were selling forward positions for February-July and even February-December 2007 at prices far below the current market value. "Although they loose a lot they have to support the current market," they said.

Those industries, which had delayed buying, may have to buy now at the prevailing higher prices. "As long as this situation continues we will see prices firming up," they predicted.

In India, which is the only other source, the crop has been projected as much less this year and given its huge domestic demand the exportable surplus is estimated to be very little. This phenomenon has been keeping the Indian prices also at higher levels.

The current world scenario indicates that the demand is bigger than supply and the market seems to facing the 10-year cycle of high prices in 2007.