EVFTA offers opportunity for Vietnamese pepper to maintain its world’s no. 1 position

A range of free trade agreements (FTAs) offer new opportunities for Vietnamese pepper to affirm its top position in the world’s market, only when the product could enhance its internal competitiveness.

Vietnamese pepper is embracing great opportunities from free trade agreements.
Vietnamese pepper is embracing great opportunities from free trade agreements.

Vietnamese pepper is continuing to hold the No. 1 position as accounting for 70% of the global export market share, but it is also facing a series of difficulties due to declining export prices and over planning for pepper cultivation.

Still selling at high prices, though domestic and world pepper prices are constantly falling, the secret of the Nam Yang Agricultural and Services Cooperative in Nam Yang commune, Dak Doa district, Gia Lai province is investing in organic production immediately after its establishment. At the same time, it has also approached businesses that buy high quality clean agricultural products and organic agricultural products like Nedspice Company, Son Ha Spices Company and Ho Tieu Viet (Vietnamese pepper) Co., Ltd. in order to find stable output with good prices. In the 2017-2018 crop, the cooperative had a 1.5-hectare pepper garden certified by the Control Union Certifications that meets the US and EU organic standards. The entire output of this pepper garden (nearly seven tonnes) were covered by Ho Tieu Viet Co., Ltd. at a price of VND120,000/kg, nearly two times higher than the market price.

In the 2018-2019 crop, the cooperative continues to promote the expansion of organic pepper production to 16 ha to meet the US and EU organic standards, with an output of nearly 60 tonnes. Pepper prices have been consumed at VND82,000-85,000/kg, though much lower than the previous crop due to the impact from the sharply decline in pepper prices in general, but still nearly two times higher than the market price.

Commenting on the organic pepper farming models, Hoang Phuoc Binh, the vice chairman cum general secretary of Chu Se Pepper Association (Gia Lai province), affirmed that the old cultivating method did not help increase the selling price but farming in the direction of sustainable organic will never make a loss.

It is also an effective way in the context of low pepper prices affecting the export turnover of pepper in general. According to the Ministry of Industry and Trade, in the first half of this year, Vietnam exported more than 176,000 tonnes of pepper, worth over US$452 million, up more than 34% in volume but down 0.11% in value over the same period in 2018. In the last three years, the price of pepper in the world continuously declined due to an increase from 8-10% in supply, while demand increased by only 2%. The oversupply of demand led to a steep decline in pepper prices. Previously, the domestic price was up to VND 250,000/kg but now it’s down to just around VND45,000- 46,000 per kg. With this selling price, pepper growers are suffering losses, leading to the difficulties in paying credit debts.

Tran Quoc Toan, deputy head of the Import-Export Department (under the Ministry of Industry and Trade), pointed out that Vietnam's pepper has been listed by the Government as one of the top 10 Vietnamese agricultural products with export advantages. In pepper processing, there are currently 20 large enterprises investing in their own processing plants under hi-technology standards with a capacity of about 60,000-70,000 tonnes a year. Most factories meet the Good Manufacturing Practice (GMP) and other international standards for food processing plants.

Commitments to open markets from FTAs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Vietnam-EU Free Trade Agreement (EVFTA) also promises to bring great effect to pepper. For example, with the CPTPP, nine countries pledged to immediately eliminate tariffs, including Australia, New Zealand, Canada, Malaysia, Singapore, Brunei, Chile, Peru and Japan. Particularly, the Mexican market committed to abolish taxes according to a 16-year roadmap for green pepper products.

“Among CPTPP countries, only Malaysia has significant pepper production. However, its export ratio is not high, only accounting for about 3% of global export. Therefore, it can be said that Vietnamese pepper has quite a huge competitive advantage, especially for the three countries that have not established any trade agreements with Vietnam, including Canada, Mexico and Peru," Toan said.

For EVFTA, EU countries have committed to eliminate tariffs on pepper products as soon as the agreement comes into effect. Therefore, the effective EVFTA will be a good lever for Vietnamese businesses to increase exports to EU countries, especially for processed products that previously had been subjected to a tax rate of 5-9%.

In the context of declining pepper prices, experts have suggested that there must be a plan with a stable pepper farming area in order to improve the value of export pepper.

Accordingly, with the demand from the world market and the conditions of Vietnam, it is advisable to maintain a farming area of about 100,000-120,000 ha (the current area is at more than 150,000 ha), while harvesting areas should be at 95,000 ha, generating an average yield of 2.5-2.7 tonnes per ha and a total output of about 237,000-256,000 tonnes. By 2025, the cultivation area should be 110,000 ha, while the harvesting areas should be cut to 94,000 ha to generate an average of 2.6 tonnes per ha and a total output of about 244,000 tonnes. By 2030, it is necessary to maintain a stable farming area of 100,000 ha and 90,000 ha for harvesting to generate an average output of 2.7 tonnes per ha and 243,000 tons in total, accounting for 40% of the world market.

In particular, in order to take advantage of opportunities from FTAs, it is important to establish a chain connecting processing and exporting enterprises with pepper growers, while organising safe and sustainable production, piloting a certified linkage model in some major pepper growing areas to meet the needs of markets with high requirements on quality and geographical indications. In addition, encouraging investment in modern processing technologies to restructure products and increase the proportion of white pepper exports to 20% by 2020 and 50% by 2030 are also important.

Toan said that facing the trend of export markets increasingly tightening standards on quality and food hygiene and safety amidst the import tax rate has largely downed to zero percent under FTA commitments, the Ministry of Industry and Trade has been coordinating with the Ministry of Agriculture and Rural Development to actively grasp the situation of technical barriers and trade protection measures of foreign countries against Vietnam's export pepper to timely inform organisations and businesses, while effectively fight against unreasonable technical barriers in bilateral meetings, meetings of intergovernmental committees and at regional and multilateral forums.