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Spices: As the monsoon approaches India (the real monsoon, not those wimpy, paltry showers that El Ni¤o brought to California this year) it is time to sit back and reflect on an unusual year in spices. Most of the action in the spice markets for the period covered by this report really had nothing to do with spices; rather it resulted from very active Asian currency.

Readers who follow the financial news (or, by now, any news at all) are surely aware of the precipitous drops in the values of various Asian currencies, but the two of most concern to spice traders are the Indonesian Rupiah and the Indian Rupee. India and Indonesia are large producers of tropical spices, particularly Black and White Pepper, Nutmeg, Mace, Cloves and Cassia in Indonesia, and those and almost everything else in India.

The devaluations in Indonesia have created far greater problems than those in India and so far have led to the downfall of the Suharto government and riots and murders of ethnic Chinese Indonesians. This is one of those countries where three, four, or five percent of the population controls 70 or 80 percent of the wealth and that small percentage happens to be ethnic Chinese. This is greatly resented by the ethnically Indonesian Indonesians and they tend to take out their frustrations (and it certainly must be frustrating to find you have today about a fifth or quarter of the money you had yesterday) on the Chinese. Imagine going down to the local gas station and finding that gas, which was $1.29 a gallon yesterday is $6.00 today, you only have $10.00 and you have to drive 200 miles. Imagine the loaf of bread which was $1.00 yesterday is $5.00 today. Imagine every single item you need to survive is suddenly four or five times the price it was yesterday -- and you have no job bec ause the factory just closed because it could no longer afford raw materials, nor could it afford to pay the debt it has incurred during the "economic miracle" days. This might make you angry.

On top of these currency problems there are, of course, the same basic supply and demand considerations that have always existed in trading markets. The current crop of White Pepper is not large -- adequate to supply a slightly diminished world demand, but certainly not large. Demand actually increased from Asia during the golden years, but that is thought to be a thing of the past as reality hits home and Asians cut back on their purchases of "luxury" items like Pepper. The new crop, harvested in August and September, is reported fairly large so there is a huge discrepancy in "old crop" vs. "new crop" White Pepper prices, currently around 80 cents/lb difference. Consequently, every user is trying desperately to make do with present inventories until the cheaper new crop Pepper arrives so the White Pepper market is thinly traded and nervous. In Black Pepper, India has had a normal-to-large crop, and has marketed about a third of it at high prices since January. But now competit ion is starting to loom from Malaysia and Indonesia and this will intensify further when Brazil markets its crop in September. Prices have just recently shown a great deal of nervous weakness as Indian exporters, reeling from a weak Rupee, realize they still have two-thirds of their crop to market and the party may be over as price pressure comes from competitors across the Bay of Bengal and the Andaman Sea (pretty exotic and romantic locales, huh?)

So, what will happen to spice prices? The short-term immediate effect has been a precipitous price drop and dire predictions of further weakening. But markets have a way of doing exactly the opposite of any logical analysis. This is what makes them endlessly fascinating and worthy of study -- and what makes some traders rich and others poor.

Early-harvest Mediterranean spices such as Basil, Marjoram, Fennel and the Mints (Spear- and Pepper-) continue to languish. Pricewise these have certainly been the sad sacks of the spice world for years and this year looks no different. 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, "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. `Round and `round it goes...

Later-harvesting crops such as Cumin, Laurel, and Oregano are still a question mark at this time.

Botanicals: These markets remain very active, as we predicted in our last report. Faithful readers (and you know who you are) will recall that the problem discussed was one of stagnant or even reduced supply just at a time when demand was exploding, especially in the US. Since we wrote our last Market Report there have been attempts here and elsewhere to meet demand, but efforts have been spotty and often less than successful from a quality standpoint.

In many instances inappropriate, carelessly harvested plant parts have been marketed (the whole damn plant instead of just the rootlets or the flowering tops) or whole fields with delicate ecologies have been decimated. Careful cultivations are underway in many places by concerned agronomists but many projects have yet to reach fruition. The burgeoning demand is causing market disruptions all over and there have been reports of operators coming into areas and attempting to buy five years worth of wildcrafted production at once. The effect will probably be devastating in these areas.

The usual "hot" herbs are, of course, in extremely short supply and this will not change soon. These include, of course, high quality St. John's Wort, European Valerian, Saw Palmetto, various Echinaceas, Black Cohosh, etc. Just check the "Hot Herbs for Health" feature in any supermarket magazine. We've also seen the power of the mass media, especially television. One feature on "20/20" or "60 Minutes" can increase demand by a factor of 10, 20 or 100. Interesting products, interesting markets. Needless to say, careful and prompt purchasing is key here. Competition for scarce supply increases almost daily as more and more new players, smelling big profits from mainstream use of these once-esoteric products, enter the market.

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 -- these lovely little items -- perfect hostess gifts -- can be purchased by the ton from (you guessed it) K.H.L. Flavors, Inc.

Article copyright American Botanical Council.


By Peter Landes