Pepper 2016 Market Analysis and 2017 Market Forecast

Pepper is an important “shopping basket” product in China, a common variety on people's daily dining tables, and also one of the most important cash crops in the country, with an industry scale ranking first among vegetables. From the perspective of use, pepper is mainly divided into two major categories: fresh-eating pepper and dried pepper. Fresh-eating pepper is fresh and perishable, and the vast majority is used for direct consumption, belonging to the fresh vegetable category. The main production areas of fresh-eating pepper include Hainan, Guangdong, Yunnan, Sichuan, Chongqing, Shandong, Henan, Liaoning and other provinces (municipalities); summer and autumn production is mainly open-field planting, while winter production is mainly facility planting. Dried pepper, on the other hand, is easy to store and transport and is mainly used as a processing raw material, belonging to the condiment series. Dried pepper planting areas are concentrated in Shandong, Henan, Hebei, Xinjiang, Hunan, Hubei, Sichuan, Chongqing, Guizhou and other provinces (municipalities, autonomous regions), with open-field planting as the main production method. Since the beginning of this year, pepper prices in China have fluctuated greatly, especially dried pepper prices, which have seen sharp rises and falls, triggering strong public attention. Overall, in 2016 China's pepper output fell significantly year on year, consumption remained flat with a slight increase, exports grew strongly, both import volume and value decreased, and the overall market price rose year on year, with increased price fluctuation. It is expected that in 2017 the pepper planting area will increase year on year, consumption will grow slightly, and export volume will rise modestly. If no large-scale natural disasters occur, pepper output is expected to increase year on year, and the overall average price level will fall year on year. Farmers are advised to arrange pepper production rationally and avoid blindly following the trend by expanding planting area.

I. Analysis of Market Supply and Demand Situation in 2016

(1) Disaster-hit areas in main producing regions were extensive, and output levels fell significantly

China's pepper supply has already formed a pattern of “large-scale production and large-scale circulation,” and within a year the main producing areas where pepper begins to come to market shift in echelon from south to north according to latitude (see Table 1). It is estimated that in 2016 the national pepper planting area was 23.2 million mu, remaining flat with a slight decrease compared with last year. Except for Liaoning, the main pepper producing areas nationwide suffered to varying degrees from high temperatures, continuous rain, floods and other natural disasters, causing relatively large reductions in pepper output. In early July there was a lot of high-temperature weather, affecting pollination of dried pepper in main producing areas such as Henan and Hebei; in August heavy rainfall caused waterlogging disasters in planting areas such as Henan, Sichuan, Hunan and Shandong; in October typhoon weather also caused severe disaster in pepper producing areas such as Hainan. Repeated disasters within one year caused large-scale reductions in output in the main producing areas. In 2016, the estimated pepper yield per unit area was 1,350 kg per mu, a year-on-year decrease of 9.9%; total output was 31.33 million tons, a year-on-year decrease of 10.4%.

(2) Spicy-eating customs spread widely, and pepper consumption remained flat with a slight increase

Since pepper was introduced in the late Ming and early Qing dynasties, the spicy-eating regions in China have continued to expand, the spicy-eating population has rapidly grown, and pepper consumption has become increasingly widespread. At present, China has become a major pepper-consuming country in the world, with a total spicy-eating population of more than 500 million, accounting for about 40% of the domestic population. In 2016, domestic pepper consumption is expected to be 29.90 million tons, remaining flat with a slight increase compared with last year. From the perspective of demand structure, fresh pepper demand holds an absolutely dominant position, with fresh-eating pepper consumption exceeding 90% of total pepper consumption; the main varieties are bell pepper, sweet pepper, pickled pepper, line pepper, hot pepper and so on. Dried pepper is the main raw material for deep processing, and market demand is on the rise, with its proportion in total pepper consumption continuously increasing; the main varieties are facing-heaven pepper, millet pepper, board pepper and so on.

(3) Pepper exports grew strongly, while import volume and value both fell

China is a major pepper-exporting country in the world, and its export volume has continuously ranked first in the world. The main export destinations are South Korea, Japan, Mexico, Australia, the United States, Southeast Asia and other countries and regions. The main export products are refrigerated fresh pepper, dried pepper, pepper powder, pepper sauce, canned pepper and so on. In the first 11 months of 2016, China's pepper export volume and value were 240,000 tons and US$466 million respectively, up sharply by 42.0% and 46.8% year on year respectively. China's main pepper import source country is India, and the variety is the S17 high-pungency variety. In the first 11 months of 2016, pepper import volume and value were 2,000 tons and US$5 million respectively, down 30.1% and 10.4% year on year respectively.

(4) Pepper prices rose overall, and price fluctuation range widened

In 2016, the overall average price of pepper rose 11.7% compared with 2015. There were two main reasons: first, there were many natural disasters in 2016, pepper output fell, leading to relatively tight market supply, and brokers bid up prices to snap up goods; second, production costs rose, pushing prices upward. In 2016, the average production cost of pepper increased 11.2% year on year, mainly due to relatively rapid increases in hired labor costs and land rental costs.

In 2016, pepper prices fluctuated greatly. Taking green pepper as an example (see Figure 1), the maximum monthly price difference in the green pepper wholesale market during the year was 7.99 yuan per kg, higher than 7.19 yuan per kg in 2015 and 6.38 yuan per kg in 2014. It is worth mentioning that in 2016 dried pepper price fluctuations were particularly eye-catching, and the “sky-high spiciness” phenomenon appeared again. Taking the San Ying No. 8 premium pepper in Jining City, Shandong Province as an example, this year pepper output fell sharply, causing the price to rise in a straight line after new pepper came to market at the end of October. Within half a month, from November 1 to 15, it soared by 2 yuan per jin, reaching a historic high of 7.2 yuan per jin, and after November 16 it quickly fell back to 6.8 yuan per jin. The intensity of the fluctuation was very rare.

II. Expected Market Trend in 2017

(1) Intended planting area increases, and pepper output is expected to rise

Affected by the high-level operation of pepper prices in 2016, enthusiasm for pepper planting is high. It is expected that the area will increase to 23.9 million mu in 2017, a year-on-year increase of 3.0%. There are two main reasons: first, this year's pepper market prices were relatively good, and farmers generally intend to expand planting next year; second, the comparative benefit of planting pepper is high. As can be seen from Table 2, the profit for farmers planting pepper is significantly higher than that of other crop varieties in the same region.

In 2016 there was more abnormal weather, causing the pepper yield per unit area to be relatively low. If the weather is normal in 2017, the yield per unit area will recover to 1,404 kg per mu, a year-on-year increase of 4.0%. It is expected that driven by both area expansion and higher yield per unit area, China's pepper output in 2017 is expected to reach 33.56 million tons, a year-on-year increase of 7.1%.

(2) Market demand continues to grow, and consumption volume rises slightly

China's domestic pepper consumption demand has maintained an increasing trend for many consecutive years. There are two main reasons: first, spicy dietary customs have spread widely, especially the popularity of spicy cuisines such as Sichuan cuisine, Hunan cuisine and Guizhou cuisine, leading domestic demand for pepper and its processed products to maintain growth momentum; second, as the functions of pepper in medical care, health care, beauty and other aspects are further explored, people's demand for deep-processed pepper products continues to grow, thereby driving continuous expansion of demand for pepper raw materials. Taking various factors into comprehensive consideration, it is expected that pepper consumption in 2017 will be 31.50 million tons, a year-on-year increase of 5.3%.

(3) International demand continues to increase, and export volume rises modestly

Since entering the 21st century, world pepper trade has shown a trend of rapid development, and the international trade volume of pepper and its products has increased year by year. With the in-depth implementation of the “Belt and Road” strategy, the trade volume of fresh pepper between the international market, especially neighboring countries, and China will further increase. At the same time, there is a relatively large demand gap in the international market for deep-processed pepper products such as capsanthin and capsaicin. Stimulated by international demand, China, relying on its rich raw material advantages, will further increase the export volume of deep-processed pepper. It is expected that in 2017 China's pepper export volume will increase modestly to 320,000 tons, a year-on-year increase of 15.0%.

(4) Average price may fall year on year, with a “V”-shaped fluctuation during the year

It is expected that the overall average price of pepper in 2017 is more likely to decline. First, according to the analysis above, if abnormal weather does not occur frequently, pepper production in 2017 will exceed consumption, and a market situation of supply exceeding demand will appear. Second, pepper prices rose significantly in 2016, farmers were prominent in holding back sales, and brokers hoarded goods waiting for prices to rise, causing dried pepper inventory at the end of 2016 to increase noticeably compared with 2015, raising pepper supply in 2017 and thereby increasing downward pressure on the overall average price year on year.

In terms of the price trend during the year, pepper prices in 2017 will still continue the “V”-shaped fluctuation of previous years. As can be seen from Figure 1, driven by consumer demand during the Spring Festival holiday, pepper prices reach their highest point of the year around February each year, then begin to decline as market supply increases, continuing to fall until reaching the lowest point around August, and then rise again, gradually climbing to the highest point during the next Spring Festival period.

III. Production and Operation Recommendations

First, farmers need to arrange pepper production rationally. In 2016 pepper prices rose year on year, pushing up farmers' enthusiasm to expand pepper planting in 2017. However, according to the forecast, in 2017 China's pepper market will show an obvious trend of supply exceeding demand, and the overall average price may fall year on year. It is recommended that farmers arrange their 2017 planting plans rationally, and not blindly follow the trend by increasing pepper production, so as to prevent income losses caused by price declines.

Second, farmers need to strengthen pest and disease prevention and control. In recent years, pepper pests and diseases have occurred frequently in China, causing serious losses to farmers. Pepper growers should adopt measures such as selecting disease-resistant varieties, disinfecting seeds, and applying chemicals to strengthen prevention and control of pepper diseases such as phytophthora blight, viral disease, anthracnose, gray mold, and bacterial leaf spot. At the same time, they should also adopt measures such as biological control, physical control, and chemical control to increase efforts to kill pepper pests such as cotton bollworm, aphids, whiteflies, and leafminers.

Third, farmers need to adopt sustainable planting models. Pepper production requires regular crop rotation and application of organic fertilizer to maintain relatively high yields and excellent quality; otherwise it will gradually degrade. During the survey, it was found that in some places (such as Zigong City in Sichuan Province and Baoding City in Hebei Province), due to long-term pepper planting and excessive reliance on chemical fertilizers to boost production, yield per unit area decreased year on year and quality grade declined. It is recommended that farmers rotate crops regularly and increase the application of organic fertilizer to ensure the sustained and healthy development of the local pepper industry.