Dynamics of pepper trade has changed significantly during the last few years with the entry of Vietnam into the global market as a key producer. Traders said the new crop season (2009-10) is likely to be volatile and uncertain.

The emergence of Vietnam as the market maker, buyers shifting to short-term contacts and India transforming itself into a net importer of pepper have made irreversible changes in the global trade of pepper and its understanding.

With the changes in climate delaying the crop cycle in most of the origins by at least a month, traders and analysts are left with very little perspective of the market.

The emergence of Vietnam as the largest producer and exporter of pepper in a short span of time has been the most important change in the pepper market. India was the leading producer and exporter of the commodity into the global market until Vietnam overtook it as the largest producer.

Vietnam also leads in productivity with 1,200 kg to 1,300 kg from a hectare. The annual production of pepper in Vietnam is pegged at around 1,10, 000?1, 25, 000 tonne by traders. The official version, however, puts the figure at around 90,000 tonne.

The country has emerged as the market maker with its strategy of staggered selling to gain more revenue from pepper exports.

Earlier, the arrival of Vietnamese pepper in the market used to depress prices due to the large volume offered for sale. Vietnam?s consumption of pepper is not significant. In the last two years, the Vietnamese Pepper Association (VPA) has taken the lead in holding on to the stock so as not to flood the market with the commodity and depress the market.

VPA has also invested in building more warehouses to sell in a staggered and wise manner to earn more gains. Cheaper credit and cross-border trade with its neighbors has also helped the country hold on to its price. Interestingly, less than 15% of the Vietnamese production is sold in the US market. Vietnam sells small volumes to large number of countries, which include African nations and the new East Asian nations.

The second change has been the nature of contracts and lower inventory level. Big retailers are not only keeping lower inventory, they are covering for lesser time. This would lead to increased volatility in 2010 due to mismatch of buying and

selling needs.

There is a feeling that volume of forward contracting for 2010 may be lower than normal. The economic slow down and the lesser credit facilities have made buyers opt for nearby contracts and hand?to?mouth buying.

The transformation of India from an exporter to a net importer has also changed the market to a great extent. India used to export 40,000? 50,000 tonne of pepper annually from its yearly production of 80,000-1, 00,000 tonne.

Production in India has come down to 50,000 tonne, while it remains the largest consumer of pepper in the world with domestic consumption estimated at 40,000-45,000 tonne.