Pepper plants are indigenous to India’s Malabar Coast. Hence, India has always played a dominant role in global pepper trade. Even in ancient times, black pepper was exported from India in huge quantities – something that finds mention in ancient Sanskrit literature. In fact, black pepper is one of the oldest spices known to mankind and is widely used all around the world. And although the Indian government doesn’t incentivise exports much, exporting pepper is still a massively profitable business

Sisir Pradhan | @TheDollarBiz

Even today, walk through the spice market in Kochi and you will get a sense of the rich history around black pepper, the chase for which had led to many voyages and conquer of many lands. Sit down with octogenarian traders and you would be amazed to hear tales regarding pepper’s history – from how it was used to repay debt to being the primary commodity money, from which it derived its name ‘black gold’. Due to being restricted to certain geographies, pepper cultivation and trading was a monopoly of a few until modern times and was one of the main reasons why European and Arab traders were drawn towards the Kingdom of Travancore. Until then, the rulers of the kingdom had monopolised the trading of pepper produced in the region. The importance of pepper to the Travancore exchequer can be gauged from the fact that the kingdom even fought a war against the Dutch East India Company in 1741 to secure the royal monopoly over it.

To suit every taste The major traded variants of the commodity are black pepper, white pepper, organic black pepper, green pepper, pepper powder, pepper oleoresins, pepper oil and pepper in brine. A pepper vine can grow as high as 10 metres and pepper berries are plucked after they turn yellowish-red in colour. The whole peppercorns, when ground, yield black pepper. On the other hand, white pepper is obtained by removing the outer flake of the ripened berries. The flavour of white pepper is less pungent than black pepper. Similarly, green pepper is obtained from fresh berries of the pepper vine. Black and white pepper have two main components – oil and piperine, which is the source of the pungency. Black pepper contains anywhere between 0.6% to 2.6% essential oils that have the aromatic flavour of black pepper but not the pungency. The level varies depending on the source, maturity and variety. Black pepper has many applications – as flavouring and seasoning agents and as preservatives. It also has certain medicinal properties – from being used as a stimulant to improve appetite to being used to fight nausea.

 Other allurements In India, major pepper markets are located in Cochin, Alleppey, Calicut, Nedumangad, Konni, Adoor, Pala, Tellicherry, Kanjangad and Kasaragod in Kerala and, of course, Mumbai. According to estimates, India consumes about 40,000-45,000 MT black pepper every year, making it, by far, the largest consumer of the spice. India also exports pepper to US, Europe, Australia and Middle East.  

However, India’s pepper production has failed to keep pace with the high domestic consumption and export demand. In fact, what might be a shock to many is the fact that India’s net pepper harvest has not changed in the last two decades, at least that’s what the Spices Board of India claims. As a result, India imports large volumes of the spice from countries like Vietnam, which has very little domestic consumption. Highlighting one of the reasons behind the lack of growth in Indian pepper production, Jojan Malayil, Managing Director, Bafna Enterprises, told

The Dollar Business, “Today, farmers prefer crops like cardamom as it ripens much quicker than pepper, which takes two to five years to yield.” Similarly, T. T. Thomas, an Idukki-based farmer, who has won a national award for developing a disease-resistant and high-yield variety of pepper called Pepper Thekken, said, “Diseases in pepper vine is discouraging farmers to pursue the crop. It is also much more expensive to harvest the pepper crop. We don’t get much support from the Spices Board. Due to such lack of encouragements, not many farmers are interested in growing pepper.” Thomas thinks Vietnam has a much better model for pepper cultivation.  

Legacy benefits As a result of sustained demand and stagnant production, India has started importing pepper in massive quantities. In fact, in FY2013, India imported over $100 million worth of pepper (neither crushed nor ground) – almost 25% more than what it exported. This, despite Indian import duty on pepper being, by far, the highest in the world. On the other hand, when it comes to processed pepper (crushed or ground), India’s exports have been growing at a CAGR of 21.95% over the last 10 years. Isn’t this a bit contradictory? Helping us through this conundrum is Gulshan John, Managing Director, Nedspice Processing India Pvt. Ltd., the Indian subsidiary of The Netherlands-based Nedspice Sourcing BV. Speaking to The Dollar Business, John said, “India is still an attractive destination for spice processing and extraction and other value additions. Due to established infrastructure and availability of skilled manpower, we have set up our plants here.”

Interestingly, from being the biggest exporter of pepper (neither crushed nor ground), India has now become the 2nd biggest exporter of processed pepper (crushed or ground). “India doesn’t produce enough pepper to cater to both domestic and export markets. Hence, we import pepper from markets like Vietnam, process it and then re-export it. However, India has one of the highest import duties and hence we have to re-export our products within 120 days to avail duty exemption,” Malayil added. With the emergence of Vietnam and other South-East Asian countries, India has completely lost control over the price of pepper. Lamenting this, Shailesh M. Shah, Director, Jabs International, told The Dollar Business, “Earlier, Indian pepper, particularly the Malabar varieties, used to fetch a premium over other varieties. But ever since Vietnam entered the market, with lower priced crop, Indian traders are facing severe pricing pressure because of the domestic price being very high due to high local demand.”

Despite odds Apart from high domestic demand and stagnancy in production, sudden spurt in pepper prices in the domestic market has also forced pepper exporters to look overseas for sourcing. According to a Spices Board of India report, about 58,000 MT of pepper was produced in India in FY2014. However, industry insiders claim the actual crop was much lower at around 40,000-45,000 MT, almost all of which was consumed domestically. A glaring example of such spurts was when domestic pepper prices shot up to Rs.638.38/kg in April 2014 from Rs.532.08/kg just a month before. What’s more interesting, however, is that the industry is divided on what caused this spurt. While some attribute it to a poor crop, some blame it on uncertainties over the fate of around 6,000 MT of pepper, which the FSSAI had, last year, seized from various warehouses of NCDEX. Despite such challenges, one of the main reasons why pepper exports from India still continue is the government’s various export incentive schemes such as Focus Market Scheme (FMS), Duty Drawback Scheme and Vishesh Krishi and Gram Udyog Yojana (VKGUY), which often absorb a bit of the price shocks. None’s fiefdom In India, pepper trading had always been dominated by a small group of traders, with well-established networks in major pepper producing regions of Kerala, Karnataka and Tamil Nadu. However, in recent times, large corporate houses are trying to enter the business and break the monopoly of a select few. Validating this, Reliance Commodities’ Narchal added, “The entry of corporate houses has helped many pepper exporters meet demand and avoid uncertainties. We bring-in expertise and technology to make pepper available for those with high demand.” And since historical entry barriers are now being broken, there’s no reason why you can’t be a protagonist in this profitable change.  

“Exports are falling because of high domestic demand” - Jojan Malayil, CEO, Bafna Enterprises

Jojan Malayil, CEO, Bafna Enterprises

  TDB: Spices Board of India has, on several occasions, awarded you as the largest exporter of Indian pepper. Tell us how you entered the pepper export business.

JM: Bafna Enterprises began operations more than 25 years ago in Cochin as a small family business, catering to a domestic clientele. Over the years, with the opening up of the Indian economy and a changing business environment, we set our sights on the international market. Today, we have become one of India’s largest exporters of spices.

TDB: What are the major export markets for pepper and what are the challenges that Indian producers face?

JM: North America, European Union, Australia, South America and South Africa are our major export markets. Today, the major challenges faced by India pepper exporters are low productivity and rising domestic consumption of the commodity. In the last three years, hardly any Indian origin pepper has been exported out of the country. Our major competitor is Vietnam, which is the world’s largest producer and exporter of pepper, with less than 5,000 MT local consumption against an average annual production of 135,000 MT. Exporters like us have no choice but to procure pepper by paying high domestic prices. In fact, some time prices in US and Europe are lower than domestic prices here in India.

TDB: India, as a pepper producing nation, has slipped significantly from the No.1 position it earlier boasted of. This has also led to lower exports. What are the reasons for this decline?

JM: The falling demand for Indian pepper in the international market is because of the high domestic prices, which at one point of time this year was $3,000/MT (for the ASTA grade) – more than that in Vietnam. In fact, prices in India are still $1000/MT higher than Vietnam. Today, India has become more of a spice processing hub rather than a producing center.

TDB: How is it that Vietnam is able to produce pepper at a much lower cost as compared to India?

JM: Firstly, the productivity in Vietnam is almost five times more than that of India. The average production in India is 400 kg/hectare, where as it is 2 MT/hectare in Vietnam. Secondly, nobody owns land in Vietnam and it’s all leased from the government for 30/45 years, where as in India, its freehold and given the high prices of land in Kerala and Karnataka, there is absolutely no incentive for farmers to cultivate pepper.

TDB: What are your expectations from the new government at the Centre when it comes to boost exports?

JM: The government has to encourage farming, and even with that farmers might not take it up in Kerala as the condition of soil has deteriorated. Today, one has to move to Goa, Odisha, Bihar, Assam and Meghalaya for pepper farming. The government also needs to rationalise the import duty.

TDB: Indian exporters have started focusing on value-added pepper products and re-exporting them. What has been the response for this in the international market?

JM: Because of competitive wages in India, more and more overseas companies are procuring finished and ready-to-pack spices from India. India’s strength is that we offer a basket of spices, whereas Vietnam only has pepper.