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Market Report on Herbs and Spices.
Spices: The second quarter of 1999 has been very interesting in these markets. Probably the most interesting has been the incredible run-up in the price of Cloves over the last couple of months. This is due to the only factor that counts in the Clove market: Indonesia. As the world's largest producer and consumer of Cloves the market is almost entirely controlled by the size of the Indonesian crop. If Indonesia has an adequate supply prices remain very low; if Indonesia needs to import Cloves the price goes up much farther and much faster than logic would lead anyone to believe. Indonesia uses about 100,000 tons of Cloves every year and reports indicate a shortfall of 30,000 tons this year. Now, many of you may well be wondering what even the fourth-most-populous nation on earth could possibly do with 100,000 tons of something that probably no American has ever used a pound of in a year. Well, Indonesians mix them with tobacco and smoke them in their ubiquitous Kretek cigarette s. These are Indonesia's most popular consumer item, with virtually every Indonesian from the age of six or so smoking them seemingly all the time (or at least as much as they can afford.) Cloves, besides imparting their unique flavor, have the additional salutary effect of anesthetizing the smoker's throat so he/she can smoke more and more Kretek cigarettes! (Obviously, the long-term health implications are horrendous!) Anyhow, a market this size in a country where political influence buys more than just a night in the Lincoln bedroom draws attention from rich people who would like to get richer. A group of such people enlisted President Suharto's son who "persuaded" the government to give them a monopoly on the Clove trade. Apparently they offered such low prices to the farmers (who had nowhere else to sell since this was a monopoly, after all) in order to fatten their profits from resale to the Kretek manufacturers that many simply stopped harvesting and drying their Clove buds. Co nsequently Indonesia is short of Cloves and must import from elsewhere. Prices since our last report have risen from about $0.72/lb to around $2.35 at this time, with further increases possible. It should be noted that as this is written another bloody chapter of Indonesian history is unfolding in East Timor -- market effects unknown and unpredictable at the present time. Stay tuned...

Fears of a total crop failure of Central American crops such as Allspice and Cardamom due to last fall's Hurricane Mitch seem at least overdone if not entirely misplaced. Prices quickly tripled for available goods but the real question was whether the trees will recover to produce a crop this fall at all. Tentatively, the answer seems to be, "Yes -- for a price." Prices have opened this year at about double the initial asking price for last year, pre-hurricane.

Less predictable, as usual, are the human elements of market movement. The Black Pepper market continues counter-intuitive with a reasonably large crop in India holding on to, and even adding to, last year's high prices. The speculative fever, always a factor in India, is fed by lack of competition from other Black Pepper sources. Malaysia, Indonesia, and Vietnam all have competitive crops but none were too plentiful and/or were wanting in quality and/or were tightly held onto by farmers who sold too early last year and were determined to get high prices this year. Add to that the fact that many exporter/speculators sold short based on their usually reasonable view that middling large crops would lead to lower prices and that these exporters had to cover their sales at a certain time and that everyone knew it and one then has a formula for higher prices even though demand is stable and supply, while not huge, is adequate, and apparently a formula for a run-on sentence of monume ntal proportions!

White Pepper continues to be genuinely rather short and the new crop from Indonesia is tightly held. This year's crop is not large by any means and this past summer's cheap sales of Chinese White Pepper have mostly gone unfulfilled. These were sold on the infamous "Chinese Contract" basis that in effect is no contract at all. The buyer is only entitled to hope that he/she gets decent merchandise at the contracted price during the contracted time period. Of course, this rarely happens; often the price goes up and the merchandise is not shipped, or the merchandise is late or not shipped at all, or the merchandise is wet and bad and the buyer is actually better off if the merchandise were not shipped. This year all three took place: price went up, contracts were defaulted on or renegotiated upward, and merchandise had about 18% moisture so was really pretty bad on top of everything else. Sarawak White Pepper from Malaysia sold out early and the crop was not very large and Brazil m ay or may not produce White Pepper this year. All in all, this leaves buyers scrambling for limited, tightly-held (mostly by people with real money) supplies of Indonesian Muntok White Pepper -- so prices remain high.

Nutmeg and Mace continue very scarce and ever-more expensive with the recent harvesting reported fairly bad and Cassia continues to sell at prices that haven't been this low in inflation-adjusted terms in centuries (literally).

Domestic Garlic certainly had some crop problems this year but fortunately Chinese Garlic remained (and remains) very cheap and plentiful.

Mediterranean spices like Laurel, Basil, Marjoram, and Oregano seemed to be climbing out of the doldrums a while ago (and even prompted an investigative visit to Egypt by your faithful correspondent), but have, in fact, remained rather too cheap to attract any real attention (even from this column). It would be a kindness to ignore these sleeping dogs of the spice world, and so we shall.

Botanicals: Very interesting markets again this quarter -- stock markets that is. Most of the attention seems to be focused on who's buying whom and for how much and who will be losing whose job in the consolidation and working as a "consultant" for the foreseeable future. Warehouses remain overloaded with a few "hot" botanicals, like the usual suspects St. John's wort, Kava, Ginkgo, Echinacea (both extract and bulk leaves) and empty of almost anything else. Stored botanicals are not necessarily improving with age so quality questions may begin to arise as store shelves remain groaning under the weight of unsold herbal products, and manufacturers and marketers offer better and better deals to retailers. These products will sell through, though, and manufacturers will have to buy again and then extreme caution will need to be exercised. Supply will remain a long-term problem. We are approached daily by new companies selling raw and processed botanicals, oils, and extracts. Sadly , we must report, based on correspondence, conversations and samples, that many of these new suppliers have no experience, no knowledge, no material, and no clue. Some still think they can palm off the old notorious "U.S. Quality," i.e., bad, botanicals on this market since they believe that American buyers only want their botanicals cheap and clean and have no idea what they are supposed to look like, smell like or contain. Others offer "pure" botanical powders at prices that are, somewhat suspiciously, less than the cost of good-quality whole unprocessed material. And new suppliers of herbal extracts seem to crop up at the rate of three or four a week!

All in all, this has been a very dull quarter for suppliers of quality botanicals. The results of this year's growing season in Europe will soon be known and based on weather conditions are expected to be normal. It is still too early as this is written to issue news of this year's shortages, in spite of dire warnings from some sources that supply of all roots will be tight and quality will be poor due to excessive moisture. Be sure to check your very next Market Report for the usual no-journalistic-holds-barred muckraking scoop on this critical (to both of you readers who have made it this far) issue.

Potpourri Items: Good news at last! This section removed from the market report, possibly forever!

Article copyright American Botanical Council.


By Peter Landes