Little Hope for Indonesian Spice Exporters to Recover in the 2021 Season

Published Oct 26, 2021
Indonesia's spice export market is oversupplied due to low demand due to increasing uncertainties in market demand and logistics issues. Buyers in the EU and the US are holding tightly onto their leftover inventory to navigate through the market complications. With the current situation, exporters in the supplying country facing financial challenges and have little hope to see imminent recovery in their profit margins.

October 2021 is confirming the pessimistic vibe many Indonesian spice exporters have shared as buyers from the United States (US) and European countries hold their purchases of key spices such as, clove, nutmeg, and cinnamon, which normally experience an upsurge in trade volume due to stocks replenishment in preparation of winter and end of the year festivities. However, buyers in main destination countries (US, Germany, France, Netherlands & Eastern European countries) are currently holding their purchase for two major reasons uncertainty in market demand and shipping logistics challenges at the destination ports. 

On the buy-side, many buyers are shifting to spot trades rather than contracts for the 2022 season. Wholesalers are already holding stocks collected during Q4 '20 - Q1 '21 imports and are predicted to have enough stocks until the end of winter 2021. In the EU, traders who supply to processors are largely affected by the ongoing pandemic situation facing low and uncertain demands with reduced regional consumption. Thus, they do not wish to purchase in long-term contracts or commit their financial resources. Some are reported to have stopped purchasing from exporters in the supplying country. Big spice blenders and food processors are streamlining their purchases by managing their leftover inventory. In the case of big US importers, they could not pass on the increased cost to the next value chain players, who are spice blenders, food processors, and wholesale groceries. Importers are instead securing stocks from Vietnam for cheaper prices. However, US importers are not in a big hurry as they have accumulated stock that will last them for another 6 months - 9 months at the longest. 

On the supplier-side, exporters are also worried as shipment to key ports of the US, Rotterdam, and Hamburg remains expensive and uncertain. Exporters who have signed long-term contracts with importers are sharing horror stories of CFR shipments seeing unrealistic freight charges eating into their profit margin. Some have been lucky enough to re-negotiate and escape with a sharp profit decrease. Others, however, have no other options but to default, risking a non-performance evaluation. Bulk contracts of cinnamon destined to the US ports are facing the biggest challenge. Such uncontrollable logistics disruptions are complicating the pricing plans for exporters as they are left with unsold raw material stock, but cannot make competitive offers due to high freight costs. 

This anomaly will fuel speculative purchases, price-to-quality volatility, and possibly change the landscape of stakeholders at-source as exporters are facing a dilemma to justify more funding to prepare raw materials for 2022 orders. The current market situation is predicted to last until Q2 '22 at the latest when buyers will need to replenish their stocks. As a result, many exporters are currently put to the test as their financial stability, such as access to funds and capital to maintain their business, remains limited and expensive. On the other hand, major spice buyers who have been in the spice industry for decades and even centuries are able to navigate through the current market complications simply by holding purchases - increasing spot tradings. Big-named spice companies present in Indonesia are leveraging their resources to organize their own shipments as they have contracts with shipping lines. 

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