Many challenges in the 2024 pepper crop

Vietnamese pepper is facing fierce competition with other pepper growing countries. Source: Internet.

The year 2023 has many ups and downs

In 2023, Vietnam exported 264,094 tons of pepper of all kinds, of which black pepper reached 236,148 tons, white pepper reached 27,946 tons. Total export turnover reached 906.5 million USD, including 770.6 million USD of black pepper and 135.9 million USD of white pepper. Compared to 2022, export volume increased by 13.8%, however, export turnover decreased by 8% due to an average decrease in export prices of about 420 USD/ton for black pepper and 635 USD for white pepper.

At the recent 2024 Annual Conference of the Vietnam Pepper and Spice Association (VPSA), Mr. Nguyen Tan Hien, Vice Chairman of VPSA, pointed out a series of difficulties in the pepper industry in the past year. First, demand decreased in traditional markets such as Europe and the US because inventory after the Covid-19 pandemic was still high and the Russia-Ukraine war partly affected consumer demand in the pepper industry.

In particular, in 2023, buyers will only buy at times of low prices. Specifically, according to Mr. Nguyen Tan Hien, in early 2023, when the domestic pepper price was at 58,000-60,000 VND/kg, foreign countries bought a lot and Vietnamese businesses signed contracts with very large volumes at this price. But by mid-February 2023, when the domestic price increased sharply to about 75,000 VND/kg, foreign countries stopped buying, while Vietnamese businesses had to diligently collect high-priced goods to deliver to signed low-price contracts before.

By April 2023, when businesses had delivered low-price contracts and market demand remained stagnant, domestic prices dropped to 67,000-70,000 VND/kg, and foreign customers signed contracts to buy again. This price will be kept until November 2023, when Vietnam has exported about 230,000 tons, meaning there is not much inventory left, and the domestic price continues to increase sharply to 88,000 VND/kg.

"Businesses thought this was a great opportunity to sell for the 2024 crop, but when offering this price, no customers bought, then the price dropped to 80,000 VND/kg" - Mr. Hien said.

Another difficulty that Vietnamese pepper businesses will face in 2023 is fierce competition among pepper growing countries, especially Brazil. With cheap land prices, soil suitable for pepper crops and the application of mechanization in planting, tending and harvesting, Brazil's pepper price is always 600-700 USD/ton lower than Vietnam. Therefore, Brazil is willing to sell at a price 300-500 USD/ton lower than Vietnam, causing great difficulties for businesses. Even domestically, Vietnamese businesses compete with each other very fiercely. "If we continue to compete on price as currently, at some point Vietnamese enterprises will no longer have the resources to reinvest and improve quality to meet the increasing demands of the market" - Mr. Hien fear.

Along with that is the challenge of pesticide residue on pepper. Not only Europe but also the US market is preparing to apply very strict residue levels. In addition, climate change also threatens the productivity of pepper gardens. In particular, rising prices of coffee and durian also lead to the risk of the pepper garden area shrinking in the future. Besides, the difficulties of sharply increasing shipping rates also have a significant impact on businesses. According to Mr. Hien, in 2023, for every ton of pepper exported, businesses will suffer a loss of 150-250 USD due to increased freight rates.

The difficulties will not end in 2024

At present, the 2024 pepper harvest has begun in some districts of Dak Nong province, however the harvest is mainly scattered in some districts and not much. Due to the effects of climate change, this year's harvest is later than last year. VPSA expects Vietnam's pepper output in 2024 to reach 170,000 tons, down 10.5% compared to 2023. Prices are expected to be better after the Lunar New Year when Chinese traders increase their purchasing power in the market, especially at the beginning of the second quarter of every year. In addition, other markets will also have to start buying again even though the economy is still in crisis, which may cause inventory at the end of the year to continue to decrease.

However, Mr. Hien commented that, in addition to the challenges that have persisted since 2023 regarding residue issues, freight prices..., the pepper industry also faces many new challenges in 2024. Accordingly, 2024 is the year with the lowest inventory output from the previous year in the past 5 years. Because the export volume in 2023 is already quite large compared to domestic production. "In November 2023, when the price of pepper jumped to nearly 90,000 VND/kg, many businesses wanted to collect a few hundred tons but there were no goods, proving that people's inventory was still very low" - Mr. Hien said.

According to Mr. Hien, Vietnam's pepper output in 2024 will likely be at the lowest level in the past 5 years. In other pepper producing countries such as India, Indonesia, and Brazil, output is forecast to also decrease. This leads to the amount of pepper imported into Vietnam will also decrease in 2024. Vietnam mainly imports pepper from Indonesia, but the country's pepper prices are increasingly expensive as Indonesia's customers are mainly Japan, Korea, Taiwan, and China - which are willing to pay high prices. Therefore, Indonesia only sells to Vietnam when there is excess supply.

As for Brazil, although the price is lower than Vietnam, with the situation of drought and crop failure, Brazilian people will not rush to sell at cheap prices. “Currently, Brazil is offering a price about 50-100 USD/ton lower than Vietnam. If imported at this price for export processing, Vietnamese enterprises cannot make a profit" - Mr. Hien commented.

With low inventory, forecast reduced output and lower imports, Mr. Nguyen Tan Hien said that Vietnam's pepper exports in 2024 will likely reach the lowest level in the last 5 years.