Global Production Surplus Brings Down Indonesian Pepper Prices

White Peppercorn

India

Vietnam

Published Feb 7, 2020

Pepper prices for Indonesia are low in 2020 due to global oversupply. With worldwide demand steadily increasing, however, Indonesian production is expected to increase in the long run.

Indonesian pepper prices in 2020 are unlikely to recover soon after a decrease in 2019 due to global oversupply. The current surplus of both white and black pepper has caused a reduction in the average global price of these commodities by approximately 30% per ton. The outlook is expected to be more optimistic for 2021 as demand is to continue increasing steadily.

A Decrease in Indonesian Prices

International production situations and demand are especially impactful for Indonesia as almost 80% of the country’s pepper production is exported to global markets. According to the Indonesian Department of Agriculture, the average export price of pepper in 2019 was approximately USD 2,516 per ton, which is down by 23.6% compared to 2018.

Indonesian prices were fluctuating from USD 1.6 to 1.65 per kg in early February. This caused the country’s pepper suppliers to hold onto their stock and not respond to new purchase inquiries from international buyers, at least until the price has gone back up to its normal rate.

Increased Pepper Plantations / Productivity for Top Exporters Reason for the Surplus

According to the Indonesian Ministry of Industry and Trade’s forecast of 2020, pepper prices are not expected to recover for the time being. This is after the increase of pepper planting acreage in top exporting countries between 2016 and 2017. The increase in supply resulting from the production expansion is expected to last at least until the end of 2020.

Vietnam, the largest pepper exporter worldwide, increased its pepper plantations in 2017 and is expecting an unusually productive harvest this season. India is also expecting increases in its 2019/2020 production by 30%. Brazil, the second-largest exporter, is expecting a favorable harvest from its low cost and high yield production model. All of these factors have driven up global supply for the 2019/2020 season.

Steady Rise in Demand Fuels Production Expansion

The increased interest in the pepper market comes after a prominent surge in demand during 2011 that reached its peak in 2017 and is expected to expand by a CAGR of +1.2% during the 2018-2025 period. The demand increase stems from increased awareness of the product’s health benefits, such as its antioxidant properties. As a result, pepper-infused health products, such as pepper soaps and toothpaste, are also on the rise due to its disinfecting properties. However, while demand for pepper worldwide has been rising steadily, it was not enough to make up for the sudden increase in production this season.

Expected Increase of Indonesian Production in the Long Run

Thus, despite the recent oversupply trends, Indonesian production is expected to increase in the long run to meet with increasing demand. The country is currently the third-largest exporter and second-biggest producer of pepper in the world, with total pepper production from 2007 to 2018 in Indonesia increasing at about 0.8% per year.

This is expected to continue with Indonesia aiming to increase its range of exporters in the long run. The Provincial Government of the Bangka Belitung Islands, a major white pepper producing region, has even opened up its white pepper market freely to invite more potential buyers from China, Japan, the US, and Europe.

Prices Estimated to Normalize Gradually

Prices are expected to gradually increase as the effects of the sudden expansion start to wear off. Price is estimated to start increasing in 2021 and recover strongly in 2022 when the oversupply from the unusual bumper harvest starts to normalize and production supply stabilizes.