Vietnamese pepper exports: Looking back at the first nine months of 2020
Vietnam’s pepper exports in the first nine months of 2020 plummeted in both volume and value. To be clearer, the volume flourished in the second half of Q1 but regressed throughout Q2 due to a recurrence of COVID-19 that caused many countries to close their borders and supply chains of Vietnamese pepper to be interrupted.
Vietnam exported 200,000 tons of pepper in the first nine months of 2020, decreasing 5.8% compared to the same period in 2019. With 140 thousand tons in volume, black pepper accounts for a significant proportion in the export structure, while white pepper and grounded pepper both nearly reached 18 thousand tons.
Data from the Ministry of Agriculture and Rural Development (MARD) shows that 95% of Vietnam’s pepper production is exported. The US remains the largest export market of Vietnamese pepper in the first nine months of 2020, with more than 40 thousand tons, accounting for 34.1% of the total value, followed by India, Germany, and Pakistan.
Source: VIRAC, MARD
2,134 USD per ton is the average price of Vietnamese pepper in the first six months of 2020, according to data from the Vietnam Pepper Association (VPA), declined 16.5% compared to the same period last year. In addition, pepper production in the coming time is forecast to decrease in volume due to the consequences of COVID-19, making Vietnam unlikely to reach the 2020 pepper export target of 280 thousand tons in volume, 500 million USD in value.
In 2020, Vietnam has about 60 pepper enterprises with export activities out of more than 200 enterprises in total. According to the VPA’s data, 37.7% of Vietnam’s total pepper exports belong to top brands such as Pearl Corporation, Phuc Sinh, Olam Vietnam, Nedspice, etc.
Fierce competition with Brazilian and Indonesian pepper
Ups and downs in the Vietnamese pepper exports are caused by several underlying factors apart from COVID-19, such as the competition from Brazilian and Indonesian pepper. The Agency of Foreign Trade (AFT) recently released data showing Vietnamese pepper’s weakening in the international market. Five years ago, the Vietnamese pepper industry was considered the world’s best in productivity and quality. Still, in the last two years, it has been intimidated by fierce competitors like Brazil, India, or Indonesia.
Although Vietnamese pepper is available in 105 different countries and regions, it remains competing mostly in the lower price segment. Meanwhile, Brazilian pepper is appraised for good quality, with 80% of export output meeting organic standards. This August, India also charged Vietnamese pepper for failing the minimum standard of 6% piperine, which severely affected Vietnam’s reputation in the international market. These two countries also forecast high yields in the current pepper harvest from August to November, increasing pressure on Vietnamese pepper.
Besides, Vietnam pepper also suffers from natural disasters like storms and floods in its consumer markets. While the US-UK market’s purchasing power decreased mainly due to the pandemic, floods are the leading cause in the case of China. Furthermore, China has temporarily closed multiple entry ports to control COVID-19, causing Vietnamese goods to stagnate at the border.
New opportunities for Vietnamese pepper
Leveraging the EVFTA agreement
The newly signed EU-Vietnam Free Trade Agreement (EVFTA) is a golden opportunity amid the current situation of Vietnam pepper exports. In fact, Vietnam’s pepper exports have witnessed a decrease in most markets but recorded positive signs in the EU.
Many Vietnamese manufactured goods importing to the EU were taxed at 5-9% in the past. Fortunately, the EVFTA agreement will fully eliminate this for pepper products with HS code 09.04. Besides, instead of having multiple separate standards for imported pepper in EU countries, the whole EU region now applies only one shared standard. The mentioned terms are great levers for Vietnamese pepper businesses to increase exports to the EU market.
These opportunities might be great, but Vietnam needs to develop long-term and sustainable solutions for the remaining issues to take full advantage of them. A major one, for example, is pesticide residues in pepper. Although the European Commission (EC) has adjusted its standard for Metalaxyl from 0.1ppm to 0.05ppm, only 46% of Vietnamese pepper is qualified by 2018. Furthermore, Vietnamese pepper has also received warnings about Salmonella SPP infection, mold, or traceability.
According to the Vietnam News Agency, Vietnam currently has 14 pepper factories qualified for international standards like ESA or ASTA. To face the strict technical barriers in the EU market, pepper enterprises and farmers need to join hands to develop and expand organic plantations, ensuring that Vietnamese pepper can gain ground against Brazilian and Indonesian pepper.
Unlocking the potential of manufactured pepper
The VPA highly recommends pepper businesses to promote the consumption of manufactured pepper in the domestic market. Their 2020 data shows that although Vietnam is one of the world’s pepper giants, pepper’s domestic consumption only accounts for 5%. Thus, the domestic market still has much potential to exploit, especially with manufactured products.
Many Vietnamese enterprises have applied innovative and unique pepper manufacturing technologies, thus successfully multiplying pepper value. A great example would be Phuc Sinh Group with their free-dried peppercorn line – K PEPPER that possesses impressive traits such as having a green color like fresh pepper and a great spicy taste like old pepper. According to a Phuc Sinh Group report, this product is sold for 14 to 18 USD per kg in the foreign market, which raised the value of pepper 6, 7 times compared to raw products. After one year of supplying foreign markets like Germany, Switzerland, and the Netherlands, Phuc Sinh has brought K PEPPER back to Vietnam with a retail price of 66,000 VND per bottle of 90g.
A major hindrance in the development of Vietnamese manufactured pepper products is the inadequate production structure, which results in high-value products accounting for a tiny portion of the total output. With that said, pepper businesses need to re-plan their production zone, increase the application of science and technology in farming and manufacturing for the sake of long-term development.
Restoring markets from COVID-19
VPA also encourages pepper businesses to restore exports to East Asia countries where lockdown restrictions were lifted, like Japan and South Korea. These economies have reopened and restored their international traffic, making tariff procedures circulating positively, creating favorable conditions for Vietnamese pepper enterprises to cooperate and export.
Many economists predict that the East Asia market’s recovery can significantly boost Vietnam pepper export in Q3 2020 compared to Q2 2020. In addition, new markets in Africa and the Middle East are also approachable despite shortcomings such as low prices or difficulties in making payments.