PEPPER MARKET - WHY SO VOLATILE ALL OF SUDDEN

The 37th IPC meeting held earlier this September in Sri Lanka has come to a conclusion that a general global decline in pepper production should be expected in in 2007.

This conclusion justified the bullish market trends. Actually we´ve witnessed a long time orchestrated efforts for market recovering from a 7 years long depression, since Vietnam decided to invest seriuosly in the pepper industry.

In the chart below we may see the prices /production behaviour before and after Vietnam entering the world market.
In few years Vietnam became the biggest and the cheapest producer and exporter responsible for half of the pepper in the world.

This brilliant strategy gave the market a long time not seen stability even at low prices and made most of the competition to become less atracted by this industry searching alternatives crop that would pay better pricing.

Once consolidated his placement in the market Vietnam authorities improved programs targeting a better pay-off for its pepper plantations improving quality and value-added products like the white pepper.
It also worked, helped by a favourable world dituation and in the year of 2006 they conquered the American market. Not only this but Vietnam priviledged situation attracted some big international players who installed trade points in an atempt to somehow control the market.

Analizing the chart above we may notice that for the last 20 years the international prices and the world production had inverse simetrical path which is absolutely normal.
Unfortunately we do not have figures for the international trade before 1997 ( in green).

Nevertheless 2 things are evident:

1- The trades are always less than production which may be justified by local consumption and carryover stocks. If the green line would be sometime above the blue it would mean that carryovers are consummed and a potential shotage is created, which is not the case in recent years.

2- A big carryover stock was created during the last years, particullary since the year of 2000 when Vietnam begun to strongly improve its production.

Actualy just analizing this chart wouldn´t give any plausible reason for the sudden rise in prices that happened in July 2006 cause all the other parameters continued their path steadily.

India has a huge internal consumption a highly developed trading system and exchange trades. The futures trade
as we commented before are not always used by the real pepper dealers. If you put toghether several factors that may justify a mass cataraze it can explain the creation of an uncotrolable movement towards an objective - in this case the prices rise.


It is evident and legitimate that producers want to get better prices for their work. If this wishfull thinking perceives some other facts that may support it and the response from other parties begin to happen, than it is a snowball and an avalanche - no one can stop it till it gets to the crossroad.
And in this case the crossroad is: Will prices be sustained ?