Spices: attention turns to domestic markets
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CTA. 1992. Spices: attention turns to domestic markets . Spore 42. CTA, Wageningen, The Netherlands.
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The astonishingly high value and low bulk of most spices have made them ideal cash crops. But the market for many of the world's major spices is now grossly oversupplied: it is understood, for instance, that in 1990, Madagascar alone held enough...
The astonishingly high value and low bulk of most spices have made them ideal cash crops. But the market for many of the world's major spices is now grossly oversupplied: it is understood, for instance, that in 1990, Madagascar alone held enough unsold stocks of vanilla to meet total world consumption for up to three years. The resulting crisis in export prices has focused attention on meeting the requirements for home consumption and on products whose quality characteristics are associated with particular countries of origin. Black pepper (Piper nigrum) is now the world's most heavily traded spice. It has a long history and is known to have been grown as early as 3,000 years BC, when it was used to preserve and season meat. It still has a high value relative to other crops, but its price is continuing to fall and is now at a record low. Three years ago black pepper sold for US$2,428/t on the US market. By 1991 the value had nearly halved and, by mid 1992, prices had fallen still further to under US$1,000/t. Falling prices on world commodity markets for a spice which is mainly supplied by countries in Asia and South America may seem to be of little concern to people in ACP countries. However, while pepper may be relatively unimportant in gross economic terms, it does have considerable importance to many countries which are minor suppliers to the world market, such as Kenya and Madagascar, and to individual growers throughout the tropics who are growing on a small scale for local consumption. Furthermore, what is happening to pepper prices is also happening to cloves, vanilla and cardamom and, in some regions, to ginger. Buyers will pay well for the specific characteristics of a particular country of origin. Jamaican ginger (Zingiber officinale), for example, was fetching US$4.95 per pound on the US market in early 1992 compared with the less highly favoured Nigerian ginger at US$0.54 per pound. So, for those producers who can supply small quantities of very high quality product with specific and desirable characteristics there are opportunities in the spice industry. Since spice production does not necessarily depend on high technology, heavy investment or complicated production processes, opportunities are open to the very smallest producers in the most remote and isolated parts of the world. Why prices are low So why have prices fallen so dramatically? The answers vary according to the spice, but the main reason is that the growth potential in the spice market was fully exploited in the 1960s and 70s. Then, high prices continued to tempt new growers, many often anxious to diversify production from other crops. National governments, ever mindful of the need for foreign exchange, have done nothing to discourage them, although it could be added that many have failed to do much to support their growers' entrepreneurial efforts. High prices in the mid-1980s encouraged new plantings of pepper in many countries. Those pepper vines are now reaching their maximum bearing age and are producing more pepper worldwide than consumers can use. The market in cloves (Syzygium aromaticum) is also suffering from over-production. New York spot prices for Madagascan and Tanzanian cloves had fallen to US$0.80 per pound in March 1992, compared with prices a decade ago of over US$5 per pound. This is largely because Indonesia, which used to import vast quantities from these countries for the manufacture of their 'Kretek' cigarettes is now not only self-sufficient in cloves but has a large surplus. It is estimated that between 80,000 and 90,000t annually are used in the Indonesian cigarette industry. This is a major loss to traditional producing nations which have no hope of being able to sell production at this level elsewhere. There is a market for smaller quantities in India and Saudi Arabia but the US and European markets are tiny, and in any case, Penang cloves are preferred. Meanwhile, in Madagascar, clove trees are being used for firewood. The international political situation has also affected the world spice trade. The Gulf War has interrupted sales of cardamom (Elettaria cardamomum) to Kuwait and Iraq, the principal importing consumers of this spice. The break-up of the former Union of Soviet Socialist Republics and the changes in eastern Europe have left the economies of those countries weak. Their imports of spices, traditionally supplied by India, have fallen heavily and this leaves the rest of the world with yet more over-production. As if problems on an international scale were not enough, problems on a national scale can be equally devastating. Vanilla is important to Madagascar, accounting for 25% of its foreign exchange earnings and employing some 60,000 producers, but burdened with unsold stocks, some smaller producers are forced to pull out their vanilla in order to grow rice to eat. Others are simply exchanging their harvested vanilla beans for a few litres of petrol, for soap or for plastic shoes, because, only one planter in ten is receiving the official price for his produce. In 1990 Madagascar produced a further 800t of vanilla to add to its 4,000t of unsold stocks, the equivalent of two to three years' total world consumption. Marketing agreements Each year the organization of vanilla producing countries (Collège de I'Océan Indien) which comprises Madagascar, Comoros and Reunion, negotiates a globe I quota with the main importing countries, in particular USA and France. In 1990 this was fixed at 744t from Madagascar, 155t from Comoros and 20t from Reunion. This system has been in operation for nearly 30 years. In 1990 the price per kg of dried vanilla pods was fixed at US$74. But Indonesia, which is not a member of the cartel, is now selling vanilla at US$50/kg and has succeeded in capturing 35% of the American market. This blows a very chill wind indeed across the Indian ocean and it is hard to see how Madagascar can respond to this challenge. The Comoros, equally vulnerable to the competition from Indonesia, have taken a different approach to Madagascar and have abolished the state marketing board. This was set up to protect the industry from fluctuating world prices and changes in the dollar rate, but it proved ineffective and its abolition has been widely welcomed. This measure, together with the change in fiscal policy to reduce export tax on vanilla, a move it has financed by increasing the import tax on tobacco, has made Comorien vanilla producers jubilant. However, there seems little doubt that the move will bring about increased production for a nonexpanding market and therefore the probability of falling prices. Vanilla from Comoros, like that from other small producing nations such as Mauritius or certain South Pacific islands, including Tonga and Vanuatu, may continue to hold its price if buyers are convinced that they are getting a better product. Those wishing to attract premium prices will have to ensure that high quality standards are maintained and that they do not over-produce. Producers are no doubt watching the trade figures. US imports (by tonnage) of Madagascan vanilla had dropped by 1990 to 59% of the 1986 total. Meanwhile imports from Indonesia had risen over the same period by 57% and vanilla from Comoros rose by 20%. Total imports into France from Madagascar, Comoros and Reunion fell to 430% of the 1986 levels whereas imports from Indonesia rose from 1 ton in 1986 to 44 tons in 1990, contributing just over half the total volume of French imports. At least producers of high quality vanilla are not directly threatened by vanillin, the artificial vanilla. This is not just because it is suitable only for the lower end of the market but because there is an increasing demand for natural flavourings. 'Natural' is often perceived to be better than 'artificial', regardless of any scientific justification for this view. Despite this, 90% of US imports of vanilla flavourings are satisfied by vanillin and other synthetic vanilla products. Manufacturers who merely require a 'natural flavouring' label on their produce, as opposed to the high quality flavour itself, can achieve this by using the cheaper Indonesian product. Indonesia is now the major producer of nutmegs, although Grenada in the West Indies produces about 25% of world exports. Here again there are problems of over-production and falling prices. There have been attempts to limit production and put a brake on the downward price trend and Indonesia and Grenada have now set up a joint marketing venture with a Dutch company to coordinate international sales of nutmeg and mace. The Netherlands is a major reexporter of nutmeg. Exports of Grenadian nutmegs fell 20% during 1990/91 whereas exports from Indonesia doubled. Even though West Indian nutmegs fetch as much as four times the price of those from Indonesia, their higher oil content makes some processing difficult and this reduces marketing opportunities for the raw spice. However, Grenada is planning to open a nutmeg oil distillery and this may go some way towards alleviating the problem of over-production. Local marketing initiatives within Grenada have linked spices with another major industry, tourism. Small-scale processing of nutmeg, for example, into nutmeg syrup and jam, and other spice products such as chutneys and preserves, make attractive gifts for tourists to take home. Such enterprises are valuable but are not likely to solve the problem of over-production Outlook for spices The outlook for these major spices is not encouraging, but there are other spices which may be more promising. Chilli and paprika peppers are doing well. This has been good news for Papua New Guinea and it seems there is room for more growth. The market for cassia and cinnamon remains steady because of the demand for cola drinks in which they are used as flavouring. Allspice (pimento) is in short supply and prices have therefore risen. Those spices which produce a natural colouring are assuming more importance as manufacturers have to satisfy consumer demand for natural as opposed to synthetic additives. These spices include paprika and turmeric, from which the yellow colourant curcumin is derived. So what should anyone interested in growing spices be considering? It is quite clear that 'Will it grow?' is not the first question to be asked. 'Will it sell?' is a better starting point and it is worth checking to see if there are any favourable trade agreements in operation. Despite heavy competition from new sources such as Indonesia, there are historical loyalties between trading nations that could be worth exploiting. It is essential, of course, to be aware of any legislative controls regarding quality standards, packaging regulations etc. that favoured markets or destination countries may require. While considering commercial opportunities, growers should also be aware of the quality requirements of the destination country with regard to microtoxins. Importing nations are becoming more sensitive to toxins and increasingly sophisticated means of testing for them are being introduced. Techniques such as irradiation, which is now becoming acceptable in some countries, will destroy bacteria but cannot destroy the microtoxins produced by those bacteria. Stories of pepper contaminated with salmonella via rat droppings, discovered in imports from South America, may be rare but it only requires one case to cause enormous damage to a country's reputation, damage that is very difficult to repair. Importers will prefer a reliable source of supply which is known to be safe. Consumers are going to continue demanding ever more stringent quality control and growers have to realize that microtoxin levels must be zero. If spices are put under stress while growing in the fields, or are badly treated after harvest, contamination will be almost inevitable. Good production processes and control from the field to the importer are no less important for spices than for other sensitive, high value produce. As an indication of the increasing sophistication of consumers even in producer countries, it is worth noting that in some parts of Africa, urban housewives are preferring to use an imported bouillon cube to flavour their cooking, because local spices traded in the dusty markets are considered less hygienic. Most producers grow spices for export but an equally effective way of closing a trading gap is to grow produce for local demand and thereby reduce imports. This can also be a safer way into a new venture. By finding a local market and then learning to grow the product well, growers are in a better position to attack foreign markets. This strategy avoids a common problem. Often a trial plot of a spice is grown, the importer is invited to examine the product and, if he finds it satisfactory, he will tell the grower that he is interested and suggests that the grower contact him again when the volume has been built up. But the importer is not interested in financing the production gap and the grower is often not in a position to take the risk. Spices are nearly always a very labour intensive crop. Vanilla has to be hand-pollinated to achieve a good yield, pepper has to be harvested over a long period and so do chilliest This makes them ideally suited to the small producer. However, because in gross economic terms spices are relatively unimportant, overstretched extension services are simply not able to help with agronomic advice. And politically too, it must seem more desirable to concentrate government efforts on food crops which affect many more growers and a much larger acreage. It may well be that ministries of agriculture can afford no more than one officer to look after spices and he or she will probably have other crops to oversee as well. But despite the problems spice production has some advantages. Pepper and vanilla can be grown very success fully intercropped with either other cash or with food crops. In Vanuatu, pepper has been introduced, almost as a garden crop, providing a good cash return from a plot as small as 10m2. It can be grown under coconut palms, using the trunks, together with artificial supports, to provide a framework on which to grow the vine. On an intensively managed site, with plenty of added compost to sustain soil fertility, other shade-tolerant crops can be grown at or below ground level for household use. Of course small individual producers have a marketing disadvantage but grouped together either in formal state or parastatal organizations, or in more informal 'clubs', their collective power can be much greater. Spices have had a long and, to some, a romantic history. The European adventurers who set sail in the 15th and 16th centuries and thereby 'discovered' the East and the West Indies, did so in search of those rare and exotic oriental spices that were so highly prized that the considerable hardships and risks of the voyages were worth enduring. The trade routes they established shaped our modern world. Today, many growers must be feeling that all 'romance' has gone out of the spice exporting industry. Like so many others, much of the traditional trade has become the victim of its own success. But despite the bleak situation in most export markets, spice cultivation can remain attractive to small-scale growers. To reap the benefits they must exploit historical loyalties and the merits of products with local quality characteristics, improve their quality control for local as well as export markets, recognize the demand for 'natural' products, practice intercropping and market their produce on a cooperative basis. It should not prove difficult for them to do so.
SubjectsMARKETING AND TRADE;
- CTA Spore (English)