Relation between production and marketing is off

Chinese importers buy limited volumes of fresh peppers from India

The price of chili peppers rapidly increased in India in early February. The Chinese market price of Indian chili peppers immediately followed. After Spring Festival [1 February, 2022] the Chinese market price of Indian chili peppers was around 1-1.50 yuan [0.16-0.24 USD] per 0.5 kg. Although the price is higher than in previous years, the sales conditions do not look great. Why is that?

Import volume is limited, and yet there is no supply shortage
Chili pepper production areas in India suffered from heavy rainfall early in the production season. This was immediately followed by speculation in the chili pepper market. The price of fresh chili peppers repeatedly increased, for example in the period following Chinese Spring Festival. Even though the price rise weakened in the last few days, the price level is still very high. Still, the limited supply volume did not stimulate demand. Chinese importers are hesitant to purchase and prefer to wait instead to see how the market will develop. They only order small volumes.

China imported 210,000 tons of chili peppers from India in 2021. That is an expansion of 37.63% compared to 2020. However, the sales conditions were not great. Chinese importers still have quite a large volume of Indian peppers in storage. Moreover, retail of Indian peppers has slowed down, which indicates limited demand. So even though the import volume decreased, there is no significant shortage in the Chinese market.

Domestic chili pepper production volume is huge and the price is low
The price of Indian chili peppers rose even higher after Spring Festival, and although Chinese importers purchase only small volumes, the price did not significantly decline. At the same time, the Chinese chili pepper industry rapidly developed in the last few years. Chinese farmers grow a wide variety of chili peppers and the overall surface area devoted to chili pepper plantation grows every year. Domestic supply is more than sufficient. And the price is relatively low, especially now that the price of Indian chili peppers maintains such a high level. That is why some importers ignore Indian chili peppers and switch to low-priced Chinese chili peppers instead.

Uncertainty grows, which affects consumption levels
The end of the pandemic is not in sight as new outbreaks repeatedly occur. That has an impact on consumption levels, not just for the expensive Chaotian peppers, but also imported peppers from India. This is visible in the volumes that buyers purchase. And the growing severity of conflict between Russia and Ukraine further adds to the economic uncertainty. Consumers respond to uncertainty with reduced consumption. At the moment, domestic consumption levels are below average. And the market absorbs supply at a slower pace.

In short, domestic demand is weak and the price of Indian chili peppers is high. The Chinese market is not able to absorb the same volume of chili peppers as in recent years. And that is why the Indian chili peppers do not sell well at the moment.

How will the market for Indian chili peppers develop?
Chinese market demand does not line up with the conditions in Indian chili pepper production areas. If conditions do not significantly change, then the volume of Indian chili peppers delivered to Chinese ports will not grow. In the short term, market supply will primarily come from Indian chili peppers already in storage. And Chinese market demand is not likely to grow much in the next few weeks.

Source: Chinese Peppers Online

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