Drought Impact on Brazil's Black Pepper Harvest and Supply Scarcity

Whole Black Peppercorn

Brazil

Published Jan 5, 2024

Adverse weather conditions, particularly the El Niño-induced drought in key pepper-producing regions like Pará, Brazil, led to significant crop failures. This crisis notably impacted the country’s black pepper exports from Q1 to Q3 of 2023, with a 2% YoY decline to 59,446 mt. Export patterns shifted away from traditional markets like the US and EU towards emerging markets in Africa, Asia, and Latin America. Concerns among suppliers about future production, estimated to decrease by 15% YoY to 100 thousand mt, raise worries about the limited supply. This scarcity has heightened challenges for buyers, causing suppliers to increase prices –the Brazil black pepper ASTA 570 variety reaching USD 3,270/mt in Dec-23, a 5% increase from the previous month. Tridge anticipates continued price elevations throughout H1-24, signaling persistent supply chain challenges and an impending production crisis.

The Brazilian black pepper market is currently grappling with challenges that have significantly impacted production, pricing, and exports. Adverse weather conditions, primarily drought attributed to El Niño, have ravaged growing key producing regions, notably Pará, leading to substantial crop failures and lesser production. The production is estimated to decrease by 15% year-on-year (YoY) to 100 thousand metric tons (mt). The severity of supply scarcity is evident in reports of extreme temperatures surpassing the tolerance limit of pepper plants and causing them to wither.

This scarcity-driven crisis significantly impacted Brazil's black pepper export figures from Q1 to Q3 of 2023, demonstrating a 2% YoY decline to 59,446 mt. Export volumes have also shifted, moving away from traditional markets in the United States (US) and European Union (EU) towards emerging markets in Africa, Asia, and Latin America. Notably, stringent import regulations concerning salmonella have led to marked reductions in import volumes for key importers such as the US and Germany, which decreased to 321 mt (-92% YoY) and 3,436 mt (-34% YoY), respectively, from Jan-23 to Sep-23. Concerns regarding salmonella detection led the US Food and Drug Administration (FDA) to issue an import alert for Brazilian black pepper on 19 Jan-23. Similarly, the EU's Rapid Alert System for Food and Feed (RASFF) reported 48 black pepper-related issues in 2022, with 90% traced back to Brazil. Consequently, Brazilian black pepper’s frequency of salmonella hazard detection has surged to 50%, contrasting sharply with the previous 20% frequency for identity and physical checks. However, some countries like Morocco, Senegal, Pakistan, Türkiye, Mexico, and Argentina displayed increased imports of Brazilian pepper during the Jan-23 to Sep-23 period, indicating a shifting trade dynamic.

Figure 1. Brazilian Black Pepper Export Volume

Dec-23 presented intensified heatwaves in the Pará region, further pressing the scarcity due to farmers' reluctance to sell their remaining stock amid the severe drought. Suppliers are deeply concerned about production, especially given the looming impact on subsequent years' yields and the current limited crop at year-end. This scarcity has resulted in an acute challenge for buyers to procure pepper, forcing suppliers to elevate prices. The price of Brazil black pepper ASTA 570 variety increased to USD 3270/mt in Dec-23, up by 5% month-on-month (MoM).

Despite the Brazilian real's depreciation against the US dollar, rendering pepper offers more appealing, the market remains highly volatile. Ongoing concerns loom regarding production as the drought's impact exacerbates fears of substantial plant failures impacting upcoming harvests. The dire situation in the Amazonas region, notably the dried-up port of Manaus, compounds shipment challenges, potentially escalating delays and cancellations for exporters.

Tridge expects that the price of Brazilian black pepper will be elevated throughout H1-24, hinting at persistent challenges in supply chains and an impending production crisis. The Brazilian black pepper market faces an uncertain and tumultuous period ahead, with the drought-induced crop failures casting a shadow over both the present circumstances and prospects.