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Market Report.
Spices: Interesting doings in Spices for this issue's long-anticipated Market Report. Prices of both Black & White Pepper have continued their meteoric rises. In fact prices have risen so far and so fast that these esoteric commodities actually rated a mention, for the first time ever, on NPR's excellent "Marketplace" program! A couple of factors have contributed to this situation. First, as far as Black Pepper is concerned, is the establishment of an organized futures trading market in this commodity in Cochin, India. This mechanism allows traders to speculate in the future price of Black Pepper on margin. One need not put up hundreds of thousands of dollars (or millions of rupees) to control large quantities of Pepper -- just a good-faith deposit of margin money, which is often no more than 3-8 percent of the value of the contract. This gives people the opportunity to speculate in quantities of Pepper that they could not possibly control without the mechanism of an exchange an d the magic of margin. While creating liquidity for end users and producers, a futures market generally makes for much wider price swings than would normally occur.

Another, and probably more important, factor in the equation is the slow but general rise in the incomes and living standards of some third-world peoples -- most particularly, in this case, in India. While nobody except a few purchasing agents at food companies and a few traders in the U.S. worries or even notices the price of Pepper (which is, after all, literally free on every restaurant table in America) it is considered a very desirable luxury item in many places in the third world, both for its unique flavoring as well as preservative properties. It is estimated that if every person in India uses only one ounce more Black Pepper per year there would be about 30,000 more tons consumed by the internal Indian market from a total crop of 50-70,000 tons, by far the world's largest crop of Black Pepper. This increased usage, if multiplied throughout Asia (and perhaps elsewhere) would make for genuine shortages of Pepper throughout the world for many years to come, a situation tha t hasn't occurred since World War II when supply lines were cut. This shift in consumption may be the first really radical change in market dynamics in many years. Interesting.

The price of White Pepper has moved up sharply also, mainly in response to the price rise in Black Pepper. Here, the crop seems adequate, though barely, to meet world demand and even a de facto devaluation of the Indonesian rupiah and 40 percent interest rates there have not led to a price decline. Theoretically, the price should be about 60 cents/lb cheaper than it is, but most of the crop is held in very strong (i.e., rich) hands and they can afford to wait out the buyers, who will eventually need to have White Pepper and will have to pay up the actual nontheoretical price in actual non-theoretical U.S. dollars. These dollars will then, of course, be converted into even more rupiahs than before the de facto devaluation, so the rich will get even richer in Indonesia (not a bad job, by the way) and probably exercise even tighter control over next year's crop.

Other spices remain somewhat dull. This seems to be the year when the long-neglected tropical spices finally have their day. Nutmeg is up about 50 percent. Mace is expensive and very scarce at origin and here, Ginger is higher (especially Chinese) and even Cloves, after languishing for years on lack of Indonesian demands, are making a move upward. This is the year when most temperate-climate (i.e. non-tropical) herbs and spices may have finally bottomed out. In fact, Basil in Egypt, which usually has three cuttings a year, is being plowed under by farmers after the first cutting due to prices being way too low to bother with. This type of situation usually leads to fairly large price increases and shortages in the following year when nobody even bothers to plant Basil. Suppliers will supply if customers are willing to meet their prices but nobody works for nothing forever. Cumin Seed, which is, as noted last time, a thoroughly manipulated item, is very strong both in price and d emand, a combination that almost always leads to spiraling price increases. Cassia (known generally in the U.S. as Cinnamon) is even weaker than at the time of our last Market Report with Indonesian exporters still carrying large stocks from last fall -- sales were not as large as expected, so currently bargains abound. Anise Seed from Turkey is very expensive since the Turkish government monopoly has bought almost all of it at high prices to make the agricultural community happy enough to re-elect them in the upcoming national election. Strange, how many components influence markets, isn't it?

Botanicals: Very interesting markets as demand explodes in the U.S. for many items and suppliers struggle to keep up. Temperate-climate botanicals are just being harvested as we write this and smart manufacturers have already lined up purchases with reliable importers and growers to secure material which will probably be very scarce very soon. There are too many items to treat individually but certainly those that are currently "hot" bear the brunt of price rises and shortages, while those that are just "warm" get shunted aside in the pursuit of the "hot" and become scarce themselves through lack of attention. If, for instance, everyone is scrambling for St. John's Wort, who is paying attention to the gathering, cleaning, drying and shipping of say, Lungwort or Plantain? Who is paying particular attention to the quality of the St. John's Wort they're harvesting, when the market will absorb all they can cut and clamor for more?

This market is at an interesting juncture with many more consumers willing to at least give herbal products a try -- it's up to suppliers and responsible manufacturers to keep them coming back by providing clean and effective safe products. The industry will certainly be subject to more and harsher scrutiny in the near future. Although it may not seem so to some, we've flown "beneath the radar" for so long that much carelessness, incompetence, and worse have long gone unnoticed. We are now presented, finally, with the opportunity of a lifetime -- the opportunity to bring products into the mainstream that have had thousands of years of history of safe and efficacious usage. Every day brings new articles and more news features attesting to the effectiveness of botanical medicine -- and more opportunity to build this market. With this opportunity comes the challenge of supply and the responsibility to the consumer in particular and the market in general, both of whom are hurt by sp ecious, ineffective and/or unsafe herbal products.

Potpourri Ingredients: Too boring to actually discuss, although an interesting example of an overhyped market. Most items were supplied from India, because of the cheap labor available there as well as the almost infinite variety of flowers, pods, seeds, cones, barks and roots that grow in that varied subcontinent. The market expands exponentially -- supply is difficult and quality is iffy. Just when exporters more-or-less have these items down pat and can supply cheap, reasonably clean, reasonably well-colored merchandise in good quantity, the market collapses, leaving these exporters with vast inventories of good, incredibly cheap ingredients desperately seeking a home. But...exporters will finally work off these inventories because the market, while no longer expanding as it did, is still there and will absorb the current excess. Exporters, though, once burned by irrational exuberance, will be much more cautious about taking positions they may not be able to profitably move a nd this will once again result in a seller's market and supply will once again, inevitably, be short. A good example of how markets are always cyclical -- and always interesting and always, above all, human.

Article copyright American Botanical Council.


By Peter Landes