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    Pepper from Viet Nam: Quality Makes a Difference

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2004

    Photo: ITC

    Viet Nam has risen in the last five years to become the world's top pepper exporter. ITC has accompanied Viet Nam during the process, helping it to upgrade quality and dramatically increase revenues for rural families, not least the women workers who underpin the industry. At the same time, the conscious emphasis on quality has allayed fears among other producers that low-priced, poor-quality pepper would drive international prices downwards.

    Viet Nam has undergone a rapid transformation to become the world's leading black pepper exporter and is ideally situated to become a more significant player in global spice markets. Fears that low-priced, poor-quality Vietnamese pepper would flood international markets causing downward pressure on global prices have proved
    unfounded.

    In fact, the improvement in the quality of Vietnamese pepper, achieved with the help of ITC, has seen market prices for the country's exports increase by as much as 50% per tonne. Vietnamese officials say that any supposed move to export low-priced, low-quality pepper was contrary to state policy and that the rise in revenue indicates that a move to better quality has paid off.

    The Vietnamese pepper industry has ben-efited from a clear understanding and greater appreciation of the fact that quality requirements for food product imports into major markets are becoming increasingly stringent. Crucially, the country has acted successfully to reposition itself in the international market for spices by improving quality and image.

    The higher price the crop is now commanding has significantly boosted income levels for rural households, making a notable difference to quality of life, not least for women workers who underpin the country's pepper industry. Families involved in the production, harvesting and selling of the pepper crop to wholesale processors have been lifted out of the vicious circle of traditional rural poverty that sees poor-quality crops command low market prices, which are insufficient to fund the investment needed to upgrade the quality of the annual crop.

    Increasing demand

    Over the last five years, ITC, working with the pepper and spice sector in Viet Nam, has promoted the need for incremental and consistent quality improvement in pepper, a strategy whose success has been clearly seen in the resulting demand for the country's produce.

    Viet Nam, which in 1999 grew pepper on only 15,000 hectares of land, had more than tripled its hectarage, giving a crop of 75,000-80,000 tonnes, by 2003. And by mid-2004, exports already amounted to 60,000 tonnes, a rise in production that saw Viet Nam become the largest pepper exporter in the world, leaving traditional producers, such as Brazil, India, Indonesia, Malaysia and Sri Lanka, behind. In addition to pepper, Viet Nam's major spice crops are cassia and star anise, with lesser volumes of ginger, turmeric and chilies.

    The Vietnamese shift to produce more pepper reflected, in part, the deterioration in the global price for coffee, a major crop for the country, and the increasing demand from the international food-processing sector for high-quality black pepper and exotic spices. The move to greater pepper production also reflected the crop's potential for higher profitability compared with other Vietnamese crops such as rubber and cashew nuts.

    Improving quality image

    Despite the exponential growth in both production and exports, Vietnamese black pepper has had to work to overcome an image of poor quality that could have continued to severely undermine the price it commanded in international markets. Pepper production in the country pre-dated the Viet Nam war and was reactivated when hostilities ended. Although farming communities had some knowledge of producing pepper, the approach was low-tech and production fragmented. Understanding of cleanliness standards, sampling plans and analytical methods - all of which are demanded by the growing international market to ensure consistently high-quality black pepper and other spices - were limited or non-existent.

    Working with ITC, Vietnamese black pepper producers began systematically to address issues of poor quality - the key determinant in keeping the price for Vietnamese black pepper low - related to:
    • fragmented local production and processing, with associated inconsistencies in the standard of pepper produced;
    • out-of-date or limited technical knowledge, which creates an obstacle to value-added domestic processing; and
    • under-investment in advanced production technology, which facilitates higher value-added production.
    In 2001 ITC launched a three-year programme, funded by seco (the Swiss State Secretariat for Economic Affairs), to boost quality assurance efforts. The American Spice Trade Association (ASTA) and the European Spice Association (ESA) worked in close collaboration with ITC to enable Vietnamese producers to address technical issues undermining the quality of their pepper and to increase their understanding of the stringent quality demands - and associated commercial opportunities - for successful penetration of international markets.

    Viet Nam, with its highly competitive labour costs, is an attractive option for American and European buyers looking for low-cost future suppliers of greater volumes of pepper and spices. ASTA-standard pepper - covering amongst other things the pepper grade, weight, volatile oil content and moisture content - is a "quality passport" for international exporters. ASTA's entry to the Vietnamese market, its relationship-building and subsequent involvement in the creation of the Viet Nam Pepper Association (VPA) was greatly assisted by ITC's status as a trusted and neutral international trade promotion organization.

    ITC's programme took a stepped approach that included:
    • ITC, assisted by the Viet Nam Institute of Trade, conducted a needs-assessment mission followed by field trips to processing areas.
    • ITC organized two workshops in Hanoi and Ho Chi Minh City. Experts, mainly from Europe and the United States, gave farmers, processors and exporters practical advice related to:
      -    the primary processing of pepper; and
      -    technical steps to ensure a consistently higher quality of pepper.
    • A technical brochure prepared by ASTA, with guidelines for primary processing and cleaning of spices, was translated into Vietnamese and was widely disseminated. The brochure was based on ASTA's "Clean Spices" programme.

    Benefits for farmers

    The goal of the assessment, field visits and workshops was, firstly, to understand the challenges and opportunities presented by local production, and subsequently to highlight for farmers the benefits, including increased income, that could be gained from production of higher value-added crops.

    Talking about the field visits, Anthony Sandana, Senior Commodity Officer at ITC, explains: "Research in the field enabled us to understand where education and training would have the most positive impact. ITC also got a better understanding of the scope of the production, processing and associated quality assurance issues to be addressed if Vietnamese producers were to boost the quality and consistency of their black pepper exports to international markets.

    "For example, pepper is sold by weight but the Vietnamese farmers were picking the crop early to cash in quickly on their investment. In many cases the pepper that was harvested was still very light and, as a result, the farmers were losing money. Educating them about matters like this can have a positive impact on final income. Helping them to improve the quality and image of their black pepper means the per-ennial crop, harvested during January and May, becomes a guaranteed part of their livelihood. These farmers will grow other crops at other times of the year, but this at least means their income from black pepper is guaranteed."

    Mr Sandana predicts that within six years there will be a significant rise in investor interest in Vietnamese pepper and spice production. "We will see more joint ventures with international companies who will bring greater knowledge and more sophisticated technology to domestic black and white pepper production and processing," he adds. He also believes that Vietnamese producers themselves will increasingly invest in new technologies to improve the quality of their pepper and produce value-added products such as essential oil and oleoresin.

    Making an impact

    To date, the major effects of ITC's programme, which has been supported by ASTA and ESA, include:
    • Vietnamese farmers and exporters have acquired a good knowledge of stringent international market requirements and in particular those related to quality.
    • Farmers have been trained to follow good agricultural practices.
    • Processors are made fully aware of good manufacturing practices.
    • On the advice of ITC experts, the Viet Nam Pepper Association was set up.
    • The overall quality of Vietnamese pepper is improving constantly.
    The reasons for Viet Nam's successful transition to producing higher-quality black pepper include:
    • The commitment of Vietnamese farmers to ensuring a high quality of pepper.
    • An increase in international demand for Vietnamese pepper.
    • Availability of low-cost labour.
    • The fact that profits are greater for farmers growing pepper compared to other crops such as coffee, rubber and cashew.
    • The creation of the VPA, which has played an active role in improving quality and is recognized as a focal point for promoting exports of pepper from Viet Nam.



    Creating the VPA

    After the ITC/ASTA/ESA Viet Nam workshops and company visits in January 2001, it was suggested that domestic producers should create an association to better represent their interests and to act as a focal point for international buyers tracking pepper production in the country. With direction from the ITC, the Viet Nam Pepper Association  was inaugurated in 2001 with 45 members from all over Viet Nam. The VPA's main purpose is to provide guidance for members related to export markets, quality standards, quality control and production techniques. The association also provides assistance in arbitration cases. Its role is set to grow in importance with the exponential growth in Vietnamese pepper exports, as well as increasing interaction with major trading partners in Europe, Japan, Republic of Korea, Singapore (where much cleaning, processing and re-exporting of pepper takes place) and the United States.

    As ITC's Anthony Sandana points out: "Customers are becoming increasingly confident in the quality of the country's pepper and some are even buying direct. Eventually, all pepper will be cleaned and processed in Viet Nam."



    Writer: Alison Clements-Hunt

    Organizations mentioned in this story:


            

    Related ITC links:
    Spices and Herbs:
    http://www.intracen.org/mds/sectors/spices/welcome.htm