Rise of Indian Black Pepper Price Steers Sri Lankan Imports

Whole Black Peppercorn

Sri Lanka

India

Published Jun 29, 2021

The substantial increase in black peppercorn price in the Indian domestic market has brought ripple effects in the Asian trade and have allowed Sri Lankan pepper to be more competitive in the Indian market. After two years of remaining stable, Indian black pepper is now surpassing the INR 400 (USD 5.39) per kg mark that was recorded two years ago. The outstanding price rise is due to the supply crunch from COVID-19 lockdowns that led to the closure of primary pepper markets in India. This situation has allowed Sri Lankan pepper to increase its imports to India and gain broader access to an already well-protected Indian market.

It couldn’t be a better time for Sri Lankan pepper to increase their pepper exports to the various Asian markets, especially to India, the primary market. Although Sri Lankan imports already have a steady supply in the Indian market, Indian trade regulations have made it hard for imported pepper to have a competitive price due to taxes and tariff quotas. However, this year, Sri Lankan pepper might have a better chance to increase its export volume, as prices in India have surged. Additionally, Sri Lanka has reported a 25% increase in pepper production this year, which allows them to set a better price on their exports.

Supply Crunch in India Raised Prices

For around two years now, pepper prices in India have remained steady, bringing sustainable growth to the domestic pepper industry. On the 10th of June, however, the prices of pepper in the Kochi market reached USD 5.45 per kilogram for the ungrounded varieties and USD 5.72 per kilogram for the grounded ones. This rise represents a 23.5% increase from last year’s average price, around USD 4.37 per kilogram.

The reason for this remarkable price rise is the supply crunch experienced in India due to COVID lockdowns that led to the closure of primary pepper markets in rural areas throughout India. Pepper production in India has been affected for most of 2020 and the first quarter of 2021, as the health crisis hasn´t been resolved. Consequently, the demand for raw materials from spice manufacturers has increased considerably, leading to the soaring of prices.

As for the rest of the world, global pepper price has also been increasing in Vietnam and Indonesia due to increased imports in China for the spice. As the second-largest pepper importer in the world, China has increased its imports by more than 150% over the last four years. In 2020, India supplied around 80% of China’s pepper import, leaving the rest of the share to Vietnam (9.3%) and Indonesia (7.5%). By 2021, these two countries will increase their share of imports in China, as India won’t cover the regular export volume.

Announced Surplus in Sri Lankan Production

According to the International Pepper Community figures presented in May 2021, Sri Lankan pepper production would increase by 25% in 2021 to a total of 25,000 tonnes. Additionally, 12,000 tonnes have been carried from last year, which means Sri Lanka has a 37,000-ton availability. According to the Pepper Community, the domestic consumption in Sri Lanka is 12,000 tonnes, which represents a surplus dedicated to exports of the entire yearly production. Thus, it was expected that the 2021 crop would be available for exports and has coincided with a declining price scenario on a global scale. This has made Sri Lankan imports to India increase considerably in the first four months of the year with a clear intention of growing its presence in India´s spice manufacturing industry.

Source: ITC Trade Map, Tridge

From January to April this year, Sri Lankan pepper imports reached 4,000 tonnes and are reported to be the highest in the last three years for this period. Even that India is the largest exporter of pepper, there are uncrushed pepper imports, due to the manufacturing spice industry demand. In 2020, India imported USD 90 million in pepper, and Sri Lanka accounts for 40% of the share. Until now, Sri Lankan imports have been limited and controlled by the Indian industry, as several quotas and taxes have been imposed in which Sri Lankan produce fell.

Outlook for the Indian Black Pepper Market

Spice traders in India are concerned over the increased imports of Sri Lankan pepper into India this year. They traditionally have a protective tariff system in place that controls the price of pepper imports from Sri Lanka, Vietnam, and Indonesia. Trade regulations such as fixing a minimum import price of INR 500 a kg, including cost, insurance, and freight, have been taken to assure imports don't enter the market with a lower price. Pepper imports below INR 500 (USD 6.73) are allowed under an advance authorization scheme for 100 % export-oriented units to meet the needs of the oleo-resin industry.

India applies zero duties on the import of pepper from Sri Lanka with a cap of 2,500 tonnes. Anything above that is charged an 8% duty per the South Asian Free Trade Agreement (SAFTA). Pepper imports are also allowed at 51% customs duty under an agreement with the Association of South-East Asian Nations (ASEAN).

With these trade quotas and regulations, Sri Lankan imports are traditionally controlled and placed to specific industrial needs. However, if domestic prices were to remain high in the Indian wholesale market as local supply stays short, Sri Lankan pepper would have a bigger chance to gain a market share outside the traditional industrial channels.

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