Pepper production has performed strongly in Sarawak

 

Riding a wave of robust market prices, Sarawak's pepper industry has continued to post financial gains as global demand for the spice continues to grow. The state dominates Malaysia's pepper sector, accounting for roughly 95% of the country's output. As a result, pepper has become a major cash crop supplementing the timber and palm oil industries. First cultivated during the 19th century, Sarawak pepper has become internationally prized for its high quality over the years.

BULL RUN: Malaysia consistently ranks in the world’s top five exporters. The country shipped out 12,105 tonnes of the spice in 2013, according to data from the International Pepper Community (IPC), while Malaysia's Department of Statistics put the figure at 13,061 tonnes. This made Malaysia the sixth-largest exporter, behind Vietnam, which shipped out 132,955 tonnes of pepper in 2013, with Indonesia coming in a distant second with 47,908 tonnes and Brazil third with 30,605 tonnes.

Producers have racked up record profits in recent years as global commodity prices have risen alongside demand. Pepper prices recorded their largest ever single-year gain of 27% in 2014, surging from $7633 per tonne in January to an all-time high of $9736 by the end of the year, according to the IPC. This was due largely to a decline in global production in 2014 in which cumulative production dipped from 379,000 tonnes in 2013 to an estimated 336,000 tonnes the following year. “International demand for pepper has increased an average 4% year-on-year for the past 20 years, whereas production has only risen by 0.6%," Grunsin Ayom of the Malaysian Pepper Board (MPB) told OBG. "Pepper demand is not price elastic, which adds to the mystery of how much prices can actually rise.”

STABLE PRICES: Although global production is projected to rebound in 2015 due in part to a stronger harvest in India, prices are set to remain stable. Looking more closely at the local market, the price of Kuching Grade 1 white pepper rose from RM29,000 ($8822) per tonne at the beginning of the 2014 to RM37,000 ($11,255) per tonne by December, while the price of black pepper increased from RM19,000 ($5780) per tonne to RM27,000 ($8213) per tonne over the course of the year, according to the MPB. These levels receded slightly in early 2015 with white pepper dipping to RM36,500 ($11,103) in Kuching as of February while black pepper settled at RM26,000 ($7909).

As a result, the value of pepper exports more than doubled from 2009 to 2013. Pepper sales brought in RM289.9m ($88.2m) in 2013, up from RM251.3m ($76.4m) the previous year and RM144.81 ($44.1m) in 2009, according to data from the Department of Statistics Malaysia. This trend continued into 2014 with year-on-year exports increasing to RM339.4m ($103.3m) through October compared to RM231.5m ($70.4m) for the first 10 months of 2013.

This trend is expected to continue in the future with sustained demand from wealthy markets such as Japan, South Korea and Singapore. Japan remains by far the largest purchaser of Sarawak pepper, buying 29.2% of pepper exports as of mid-2013, followed by Taiwan with 17%. China and a host of other countries including Thailand, South Korea, Singapore and Indonesia represented second-tier importers all taking on between 6-10% of exports. Moreover, with demand expected to rise alongside economic growth and the changing tastes of a growing middle class, China also represents a substantial market for future expansion.

Even if global supply eases upwards pressure on the commodity, Sarawak is poised for further growth as the sector boosts value-added activities for pepper, including food processing facilities in the Tanjung Manis Halal Hub within the Sarawak Renewable Energy Corridor. As the industrial zone gains momentum, support industries such as bottling and packaging should become more developed which will in turn reduce some of the higher costs associated with production in Sarawak.

EXPANDING PRODUCTION: To increase domestic demand, the MPB is also targeting increases in local production. This will be carried out through an increase in yield from the smallholder-dominated industry through improved cultivation practices, as well as by increasing working pepper acreage from current levels of 14,000 ha to 20,000 ha by 2020. The majority of this activity will be centred in Sarawak, with a target of producing upwards of 40,000 tonnes of pepper annually in the state by 2020.

This would require a greater acceleration of production growth with Malaysian output showing inconsistent growth patterns over the past decade. Production vacillated between 15,400 tonnes and 18,000 tonnes from 2004 to 2013, with a high of 18,000 tonnes in 2011 followed by lower output of 16,100 tonnes and 17,500 tonnes in 2012 and 2013, respectively, according to IPC data. Although the black pepper varieties account for the bulk of production – 70% of total output in 2013 – demand for Sarawak's premium white pepper has led Malaysia to produce a higher proportion of white pepper compared with other producers.

INCONSISTENT OUTPUT: The country cultivated 6.65% of the world's black pepper in 2014 compared with 8.67% of the white pepper market. To stabilise this inconsistent output and capitalise on the bull market for the commodity, both the government and the private sector have been rolling out new programmes designed to boost production. Federal funding for pepper development in 2014 was at RM29.4m ($8.9m), more than double the previous year's allocation of RM14m ($4.3m) allocation, according to statements made by Grunsin, the director-general of the MPB, to local media in January 2014. The bulk of this funding has been earmarked for farmer assistance programmes including new planting, the replanting of unproductive areas, farm expansion and maintenance, as well as other farm inputs to boost yields and quality. “The board is supporting farmers by giving them fertilisers and the necessary quality tools,” Grunsin told OBG. “Farmers also have incentives to achieve certain standards of quality by receiving premiums whenever these are met.”

Grunsin told OBG that the MBP was setting up 785 ha of new pepper farms, including 300 ha under farm extension projects. Around 80% of the new planting area would be in Sarawak. Although there are some larger farms of up to 5 ha being cultivated in Peninsular Malaysia, pepper farming in Borneo remains very much a family affair with the average farm size consisting of around 400 vines situated on just 0.2 ha of land.

FEDERAL FUNDING: This federal funding increase – the majority of which will be channelled to Sarawak – was further supplemented in 2014 by an additional RM2m ($608,400) set aside by the Sarawak state government under the 1Azam Tani aid programme to finance pepper farm projects.

Owing in part to these programmes as well as normal seasonal variations, Sarawak's pepper crop has exhibited strong growth in 2014 with exports totalling 11,914 tonnes through the first 10 months of the year. This represents a 12.34% increase over the 10,605 tonnes registered during the same time period in 2013.

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The Report: Sarawak 2015

Plantations & Agriculture chapter from The Report: Sarawak 2015

The Report: Sarawak 2015

The Report

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