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Market Report.
SPICES: Most of the action in the spice markets for the period covered by this report is really a result of action in another very active market: currencies, particularly those of Asia. Readers who follow the financial news are surely aware of the precipitous drops in the values of various Asian currencies, particularly the Malaysian ringgit, the Indonesian rupiah and the South Korean won. Korea really doesn't impact much as a spice producing country, but has some effect as a spice consuming country (more on this at a later date). Malaysia and Indonesia on the other hand are very large producers of tropical spices, particularly Black and White Pepper, Nutmeg, Mace, Cloves, and Cassia (cinnamon in the U.S.). There is a large worldwide trade in these commodities and this trade is mostly denominated in U.S. dollars. This creates both a problem and an opportunity for producers and exporters of these items. The problem for the farmer comes from deciding when to sell produce to an ex porter for the national currency, which is sinking daily (sometimes even hourly). Do you sell now, take the currency and pay off some debts or buy some much-needed food, cloth, or cigarettes or do you wait a little and perhaps get several thousand more rupiahs per kilo for your produce -- even though on the world market those several thousand more rupiah are worth the same or even less than a few days before? For the exporter buying in rupiahs and selling in U.S. dollars the problem is even more complex: does he hold onto his stocks, which after all, are climbing in rupiah-denominated value daily, but take the risk that they will soon bring less U.S. dollars -- or take the money and run. He could then repay loans and put the profit in a bank that begins to seem more and more shaky and insolvent every day as the full extent of the bad loans that bank has made become apparent. Quite a quandary.

On top of these currency problems there are, of course, the same basic supply and demand considerations that have always existed in trading markets. While demand for spices has always been considered inelastic in Western consumer countries, such as the U.S. and Western Europe (after all, nobody in these countries will use more Black Pepper because it's cheap and nobody will use less because it's expensive), this is not the case in developing countries which are large per capita users of spices (and they have very large capitas so they are a factor). With currency chaos and drops in value many ordinary consumers in Indonesia, Malaysia, Thailand, India, etc., have found that they suddenly possess one-third or less money than they did a few months ago and these hapless victims will cut back on luxury items -- like spices. It's hard to imagine for many Americans, but, yes, an item that's free on every restaurant table in America is considered an expensive luxury in many parts of th e world.

So -- what will happen to spice prices? The short-term immediate effect has been a precipitous price drop in items that are not otherwise affected by supply-and-demand factors -- crops that are already in or are being harvested now dike Black Pepper) and not known to be short in quantity. Cassia is perhaps the hardest hit of these: crops are normal to large and prices have plummeted -- down about 50 percent from recent highs. Your cinnamon bun should be much cheaper next year.

The effect on crops known to be in short supply has been the opposite, as strongly held stocks are parceled out grudgingly by exporters -- crops such as Nutmeg, Mace and White Pepper. After all, what will the exporter do with the money he receives that's better than owning an appreciating commodity? The choices are to convert it to a rapidly sinking currency or maybe to deposit it in a very shaky, technically insolvent bank (and pay the taxes on it). Not too appealing.

Mediterranean spices such as Laurel, Basil, Marjoram and Oregano continue to languish in the doldrums. We can only wait for the too-cheap-for-too-long syndrome to manifest itself yet again and for farmers and gatherers to finally say (for instance), "What? Basil? Fennel? Marjoram? For that price? The hell with it, I'll grow something else." Then the inevitable shortages and commensurate higher prices will prevail and there will be money in growing Basil again -- and then the overproduction phase will come again. Around it goes . . . .

BOTANICALS: These markets became very active, as we predicted in our last report. Faithful readers will recall that the problem discussed was one of stagnant or even reduced supply just at a time when demand is exploding, especially in the U.S. European demand for botanicals is also very strong but on a more predictable upward growth curve than in the U.S., where demand has increased exponentially this year. Take St. John's Wort, for instance. The total U.S. market for this useful herb was probably in the 25-50 ton range for many years. This year the demand in the U.S. alone may well be in the many thousands of tons. One supplier has increased production from 780 tons last year to about 1,500 tons this year and still cannot possibly meet demand. Saw Palmetto has gone from a low of about $1.45 per lb. at the beginning of the crop year to about $7.00 per lb. at the time of this writing. Quality is also a continuing problem, as also predicted. Last year's Chilean St. John's Wort ha d a high hypericin content -- around the desirable 0.3 percent. This year's production, due to unusual weather conditions caused by the El Ni¤o phenomenon (we're planning on blaming lots of stuff on El Ni¤o), is running at less than a third of that. A challenge for manufacturers -- and an expensive one at that. Prices up, quality down, and demand outstripping supply: a purchasing agent's nightmare. Many formerly cheap and readily available items are scarce and expensive this year such as Golden seal, Barberry, European Valerian, Juniper, and Cascara. The list goes on and on with new additions almost daily and little relief in sight as countries that used to export botanicals become net importers of these former hard currency earning commodities.

Care and patience will be required in these markets -- care in purchasing quality botanicals from reputable producers, exporters, and importers (e.g.,. the present author's firm) and patience in letting market forces work. Inevitably, markets respond to demand, even sudden demand, and as these items become more available, qualities will rise in response to purchasers' requirements and the cycle will start anew.

POTPOURRI ITEMS: Same as last issue -- qualities good, prices cheap, exporters desperate to sell. Will this worm turn? Probably -- and probably soon. If anyone cares, they should buy now.

Article copyright American Botanical Council.


By Peter Landes