trade has its roots in ancient times, with records of trading activity being conducted
before the times of the Egyptian pharaohs. Traditionally, the high prices obtainable
for rare spices justify the risks of the long journeys the traders needed to take
to obtain supplies.
Today transport costs are low and hazards few, yet
the differential between the price the tropical farmer receives and the price
paid by customers in temperate, industrial countries is still enormous. Black
pepper, for example, is traded internationally at about US$2500 per tonne but
is sold in Western supermarkets at the equivalent of US$25,000 a tonne. Clove
producers, who must pick each bud, sell their product at US$750 per tonne and
a tonne contains over 10 million individual clove buds. These are sold at the
equivalent of about US$50,000 per tonne to housewives in industrialised countries.
Clearly there are some costs involved in getting spices into the shops,
but the bulk of the difference is taken by the packers and retailers. Such costs
apply to most tropical products that sell with far lower profit margins, however.
So why are spices different? It seems that there are several reasons. One important
factor is the insignificance of the purchase of spices by Western consumers. Most
families in industrialised countries spend less than US$10 per year directly on
tropical spices, another factor is that industrial and individual customers in
developed countries demand totally clean food products and are suspicious of such
products if they originate in a developing country.
Customers can be
fairly sure that they will pick up a harmful germ from a food product if it is
packed in a fancy bottle or box which has the name of a local processor printed
on it. Food processing companies in the developed world are subject to strict
health regulations and would go out of business very quickly if any of their products
Very large industrial consumers want to buy from companies
that will guarantee delivery exactly on time and to the required specifications.
For this reason they prefer to buy from established spice merchants rather than
from growers in tropical countries.
Few spice growers in the tropics
are able to invest in supplicated cleaning, processing, packaging and printing
equipment or quality control systems and, even if they could, it would be difficult
to convince buyers based in developed countries that they could convince buyers
based in developed countries that they could produce a product of quality guaranteed
by their local processors. Spice growers are, therefore, in a very weak position
in their market.
Most spices are grown in several different countries
and it has proved very difficult for them to liase with each other to reduce competition
between them. Even in the case of nutmeg no progress in this direction has been
made: as long as 1982 an UNCTAD paper on spices stated, 'The two major producers
and exporters, Indonesia and Grenada, could cooperate with the eventual objective
of aligning their marketing policies for mutual benefit'. All these years later
no agreement has been reached. This factor adds to the weakness of the producers'
Western customers spend such a small proportion of their income
on spice that they do not mind paying 10 times the bulk price provided that they
can be assured of high quality.
One way to overcome these problems is
for tropical producers to concentrate on supplying to bulk consumers. Bulk consumers
in the food industry are more concerned about the price since they buy so much,
but they too are very concerned about quality. If, however, they buy in the form
of oleoresins or essential oils derived from the spices, tropical producers may
be able to sell directly to them. These products do not deteriorate as quickly
as spices, they are packed in bulk and they can easily be analysed chemically
and for quality and biological impurities.
If bulk buyers can be satisfied
that the production process is of a high standard and are able to get certification
from independent and respected analysts that the material is at an agreed standard
and is available at a competitive price, then they may well be prepared to buy
the product from a tropical producer rather than through a large spice trading
In recent years the Indians, especially have managed to build
a significant export business in spice oleoresins and this is likely to grow.
Perhaps, over time and after the building of a reputation for the supply of high-quality
products and inspection services, this business will extend to a healthy trade
in spices themselves.
Direct selling certainly makes sense in economic
terms. The services of western-based merchants and grinders do not come cheap.
In these days of instant communication such work could be done at a much lower
cost in the country of origin. It is perhaps interesting to note that very large
industrial buyers of spices are increasingly buying their supplies on long-term
contracts from very large importers who specialise in this bulk trade and buy
their supplies directly from the growers. The smaller buyers take their supplies
from small trading companies who tend to keep less in terms of stocks but who
can be relied on to supply at very short notice.
Many supermarket chains
work on a service contract basis with specialist packers and wholesalers who visit
each branch regularly and fill up the spice racks with their own brand of bottled
or packaged spices.
Another important factor in the international spice
market has been the recent acceleration in the globalisation of tastes in food.
Almost every town in the United States has a restaurant selling Mexican food.
Almost every town in Britain has a Chinese and Indian restaurant. In most modern
cities it is possible to eat every main cuisine of the world. Supermarkets are
stocked with all the world's most famous dishes in ranges of packaged convenience
foods. A high proportion of people in Western countries regularly cook curries
and oriental dishes at home.
The taste for these more exotic dishes
has greatly increased the use of spices. Unfortunately this has had no effect
on spice prices. Over the last few decades' average prices have actually fallen.
Only in 1995 have some prices started to rise, but most experts believe that this
improvement is unlikely to last.
>Market information > Tropical
commodities and their markets> Chapter 1.7