[Title]

[Date]

Crop report - Pepper

Jos van Gulick

China Spice Conference

1 November 2018

Wuxi, China

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2010 2011 2012 2013 2015 2016 2017 2018

US

$ /

MT

Black Pepper FOB

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2010 2011 2012 2013 2015 2016 2017 2018

US

$ /

MT

Black Pepper FOB White Pepper DW FOB

2

Black pepper low at

US$1,373/MT in Jul-05

Black pepper peaks at

US$9,976/MT and white pepper

at US$14,621/MT in Jun-15

Note: Monthly price data as per 15-Oct-18.

1) Average of ASTA quality Vietnam, Lampung and Brazil.

Source: Nedspice research.

Vietnam @ US$ 2,853 / MT

Brazil @ US$ 2,400 / MT

Lampung @ US$ 2,870 / MT

Have we seen the bottom yet?

3.3 years

1

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US

$ /

MT

Black Pepper FOB White Pepper DW FOB1

Production

Stock

Acreage

Plantings

Survival rate

Yield

Region

Cost price

Substitutes

Information

Knowhow

Weather

ChemicalsFertilizer

Holding power

SpeculatorsKnowledge

Culture

Holding costs

EfficiencyDecay

Innovation

Regulations

Import tariffs

Tax

FX

M&A

Size

Culture

GDP growth

Population growth

Inflation

Food trends

New applications

Local consumption

Export

Middle class

Healthcare

Sustainability

Organic

TraceabilityRegulations

Speculators

Source: Nedspice research.

Supply Price Demand

3

Fundamental market forces

4

Equator

Vietnam

India

Brazil

Indonesia

China

Cambodia

Malaysia Sri Lanka

Others

Global production

Note: Based on 2018 production estimates.

Source: Nedspice research.

147 143 153

139

178

210 218

–

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

250

300

350

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

5

Note: Based on 2018 production estimates.

Source: Nedspice research.

Vietnam

89%

Vietnam vs RoW Black vs White

Dak Lak 28%

Gia Lai 15%

Dak Nong 15%

Dong Nai 14%

Binh Phuoc 10%

Ba Ria Vung Tau

9%

Others 9%

Production over time (KMT)

Production per key area

38%

L3Y Avg.:

14%

Video placeholder: VietnamVietnam - Crop video

Due to heavy rainfall following the creation of

this video the estimated yield is slightly less

than suggested in the video. The crop

estimates in this presentation take into

account the latest views.

Harv

est cale

ndar

– – – 7 20

73 108

64

– – 2 –

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

147 143 153

139

178

210 218

273

–

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

250

300

350

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

7

Note: Stock positions are calculated based on estimates of monthly production, consumption, import and export volume, using trade statistics over the last twelve months.

1) Last twelve months export figures as per Sep-18.

Source: Nedspice Research, ITC.

Vietnam production is at an all-time high and is again expected to increase significantly this season

Production over time (KMT) Next 12 month stock development (KMT)

+25%

L3Y Avg.:

5%

Sto

ck d

evelo

pm

ent

88 77 68 63 67 126

202 238 213 189 169 144

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Oth

er

consid

era

tions

+

‒

‒

88

7

233

Stock Sep-18

Consumption

Import /Export +24.7%1

38 39 42

52 53

65

82

(15%)

5%

25%

45%

65%

85%

(15)

5

25

45

65

85

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

8

Note: Based on 2018 production estimates.

Source: Nedspice research.

Brazil

Brazil vs RoW Black vs White Production over time (KMT)

Production per key area

98%

Pará 54%

Espírito Santo 40%

Bahia 5%

Others 1%

L3Y Avg.:

30%

14%

Brazil - Crop video

91

38 39 42

52 53

65

82

(15%)

5%

25%

45%

65%

85%

(15)

5

25

45

65

85

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

10

Brazil becomes No. 2 origin with an expected increase to 91KMT

Production over time (KMT) Next 12 month stock development (KMT)

L3Y Avg.:

7%

+12%

Note: Stock positions are calculated based on estimates of monthly production, consumption, import and export volume, using trade statistics over the last twelve months.

1) Last twelve months export figures as per Sep-18.

Source: Nedspice Research, ITC.

Sto

ck d

evelo

pm

ent

29 42

55 58 61 56 52 49 49 44 41 35

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Harv

est cale

ndar

11

22 21

10 10 1 3 3 3 0.1 0.2 –

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Oth

er

consid

era

tions

+

‒

‒

29

7

70

Stock Sep-18

Consumption

Import / Export +46.8%1

54

63

35

86

45

65

92

(10%)

10%

30%

50%

70%

90%

(10)

10

30

50

70

90

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

11

Note: Based on 2018 production estimates.

Source: Nedspice research.

India

India vs RoW Black vs White Production over time (KMT)

Production per key area

16% 100%

Karnataka 50%

Kerala 32%

Plains/lowlands 10%

Tamil Nadu8%

L3Y Avg.:

1%

Floods overlapped with major pepper producing areas in India

12

Source: Nedspice research, NASA.

Recent floods in India hit major pepper growing areas; Overall impact on production is estimated to be c. 7 KMT

Illustrations

Karnataka1

Kerala2

1

2

− Most important impacted regions are Kodagu, Hassan and Chikkamagaluru

− Floods and landslides destroyed c. 10% of the yielding area

− Yield is estimated to be 5% less due to a weaker berry setting

− Overall impacted expected to be 5KMT

− Most important impacted regions are Idukki and Wayanad

− Floods and landslides destroyed c. 10% of the yielding area in Wayanad

− Yield is estimated to be 5% less due to a weaker berry setting

− Overall impacted expected to be 2KMT

1. Land slides

2. Dead vines

3. Mudflows

1

2

3

Overall impact estimated to be 10% of

production, resulting in a decrease of c. 7 KMT

60 54

63

35

86

45

65

92

(10%)

10%

30%

50%

70%

90%

(10)

10

30

50

70

90

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

13

India is expected to have a lower crop of 60 KMT this season, also impacted by the heavy rains and floods last August

Production over time (KMT) Next 12 month stock development (KMT)

L3Y Avg.:

(2%)

(35%)

Note: Stock positions are calculated based on estimates of monthly production, consumption, import and export volume, using trade statistics over the last twelve months.

1) Last twelve months export figures as per Sep-18.

Source: Nedspice Research, ITC.

Harv

est cale

ndar

– – –

9 15 18

12 6

– – – –

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Sto

ck d

evelo

pm

ent

80 77 73 77 87 101 109 110 107 103 99 96

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Oth

er

consid

era

tions

+

‒

+

80

63

16

Stock Sep-18

Consumption

Import /Export +107%1

70

47

57

70 65 65 67

–

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

14

Note: Based on 2018 production estimates.

Source: Nedspice research.

Indonesia

Indonesia vs RoW Black vs White Production over time (KMT)

Production per key area

12% 39%

L3Y Avg.:

9%

Bangka 47%

Lampung 32%

Kalimantan 16%

Others 5%

Video placeholder: IndonesiaIndonesia - Crop video (last season crop)

Harv

est cale

ndar

11 – – – – 1 1 – – 3

14

32

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

60

70

47

57

70 65 65 67

–

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

70

80

90

100

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

16

Indonesia is expected to see a decrease in production to 60KMT, driven by a decrease in Lampung

Production over time (KMT)

L3Y Avg.:

8%

(10%)

Next 12 month stock development (KMT)

Note: Stock positions are calculated based on estimates of monthly production, consumption, import and export volume, using trade statistics over the last twelve months.

1) Last twelve months export figures as per Sep-18.

Source: Nedspice Research, ITC.

Sto

ck d

evelo

pm

ent

41 36 31 27 23 20 17 13 9 9 18

45

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Fe

b-1

9

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Oth

er

consid

era

tions

41

11

40

Stock Sep-18

Consumption

Import /Export

(26.8%)1

+

‒

‒

34 35 37 38 38 38

35

–

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

17

Note: Based on 2018 production estimates.

Source: Nedspice research.

China

China vs RoW Black vs White Production over time (KMT)

Production per key area

L3Y Avg.:

0%

6% 100%

Hainan 100%

34 35 37 38 38 38

35 33

–

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

Harv

est cale

ndar

18

9

– – – – – – – – –

8

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

18

China’s crop size is estimated to decrease to 33 KMT this season

Production over time (KMT)

L3Y Avg.:

0%

(6%)

Next 12 month stock development (KMT)

Note: Stock positions are calculated based on estimates of monthly production, consumption, import and export volume, using trade statistics over the last twelve months.

1) Last twelve months export figures as per Sep-18.

Source: Nedspice Research, ITC.

Sto

ck d

evelo

pm

ent

30 35 32 29 26 24 22 21 19 17 15 21

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Oth

er

consid

era

tions

+

‒

+

30

63

33

Stock Sep-18

Consumption

Import / Export +18.5%1

5 6

10 10

12

20

24

(10%)

10%

30%

50%

70%

90%

(3)

2

7

12

17

22

27

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

19

Note: Based on 2018 production estimates.

Source: Nedspice research.

Cambodia

Cambodia vs RoW Black vs White Production over time (KMT)

Production per key area

L3Y Avg.:

14%

4% 100%

Tboung Khmum

71%

Ratanakiri 7%

Kampot 1%

Others 21%

20

Cambodia is set to continue its strong growth for now with an expected crop of 30 KMT, but planted areas start shrinking

Production over time (KMT)

+23%

Next 12 month stock development (KMT)

Note: Stock positions are calculated based on estimates of monthly production, consumption, import and export volume, using trade statistics over the last twelve months.

1) Last twelve months export figures as per Sep-18.

Source: Nedspice Research, ITC.

Oth

er

consid

era

tions

+

‒

‒

3

1

25

Stock Sep-18

Consumption

Import /Export

+8.7%1

Harv

est cale

ndar

– – 1 2 3

10 10

2 1 0 – –

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-1

9

Aug-1

9

Sto

ck d

evelo

pm

ent

3 2 2 4 6 15

23 21 18 13 10 7

Sep-1

8

Oct-

18

No

v-1

8

De

c-1

8

Jan-1

9

Feb

-19

Ma

r-1

9

Apr-

19

Ma

y-1

9

Jun-1

9

Jul-

19

Aug-1

9

30

5 6

10 10

12

20

24

(10%)

10%

30%

50%

70%

90%

(3)

2

7

12

17

22

27

2012 2013 2014 2015 2016 2017 2018 2019

Production

Change in planted area (%)

L3Y Avg.:

3%

218 273

92

60

82 91

67

60 35

33 24 30

394

455 448

531

575

612

2014 2015 2016 2017 2018 2019

21

Global pepper production (KMT)

21

Exportable production1 (KMT)

1) Excludes imports and exports between producing countries.

Source: Nedspice research.

Black 81%

White 19%

Vietnam

India

Brazil

Indonesia

ChinaCambodia

Others

+37KMT

Total production is expected to increase with 37 KMT to a total of 612 KMT

211

266

30

(4)

74

84

56

49

(25)(30)

23

29

232

288 277

355

392

424

2014 2015 2016 2017 2018 2019

63 64

60 63

11 11

9 9

40 40 157

162167

172177

182188

2013 2014 2015 2016 2017 2018 2019

Ind

ia

Chin

aO

the

rs

22

Producing countries (KMT) – 40% total

22

Consuming countries (KMT) – 60% total

Source: Nedspice research.

Versus exportable

production of 424 KMT19%

15%

9%

7%6%5%

13%

13%

2%

11%

Total demand

474KMT

Annual demand growth

c. 2.6% p.a.

c. 12 KMT p.a.

Annual production growth

37 KMT

Total production

612 KMT

Malaysia

Indonesia

87 89

70 72

41 42

33 34

25 26

23 23

249 255

261 267

273 280

286

2013 2014 2015 2016 2017 2018 2019E

uro

pe

Nort

h A

meri

ca

Others

Global demand is at some 474 KMT, which remains well below production levels

Asia

Africa

M.East

74

125 151

203

258 299

73

50 33

62

121

218

148

175 185

266

379

517

2014 2015 2016 2017 2018 2019

0

2,000

4,000

6,000

8,000

10,000

12,000

0

100

200

300

400

500

600

700

198

4

198

6

198

8

199

0

199

2

199

4

199

6

199

8

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

US

$ / M

TKM

T

Production

Consumption

Black Pepper FOB

23

Global stock development (KMT)

23

Planting estimates suggest supply will continue to outgrow demand

Historically, there is a c. 3-6 years reversal period

% C

hange in p

lante

d a

rea

1‘14-’19 CAGR

Producing countries 32.0%

Consuming countries 24.3%

Total 28.4%

Note: Market data as per 15-Oct-18.

1) Weighted average of estimated increase in Vietnam, India, Brazil, Indonesia and Cambodia planted area. The production quantities of the previous year are used as weight.

2) Average of Vietnam, Indonesia and Brazil ASTA quality.

Source: Nedspice research.

2

Global stocks are increasing, and it’s likely that supply will continue to exceed demand

11% 9%

18%

6%

3%

0%

2014 2015 2016 2017 2018 2019

Vines generally enter most

productive state in year 5 (2020)

–

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

50

100

150

200

250

300

350

400

450

500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Sto

ck ra

tio (%

)1

KM

T

Stock Demand Stock ratio

–

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

50

100

150

200

250

300

350

400

450

500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Sto

ck

ratio

(%)1

KM

T

Stock Demand Stock ratio

0

2,000

4,000

6,000

8,000

10,000

12,000

–

20%

40%

60%

80%

100%

120%

140%

160%

180%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

US

$ / M

T

Sto

ck

ra

tio

(%

)1

Stock ratio Black Pepper FOB

2424

1) Defined as global stock position / global demand.

Source: Nedspice research.

Excess production is pushing the ratio of global stocks relative to demand beyond the previous high…

1

0

2,000

4,000

6,000

8,000

10,000

12,000

–

20%

40%

60%

80%

100%

120%

140%

160%

180%

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

US

$ / M

TS

tock r

atio

(%

)1

Stock ratio Black Pepper FOB

2525

Note: Market data as per 15-Oct-18.

1) Defined as global stock position / global demand.

2) Average of Vietnam, Indonesia and Brazil ASTA quality.

Source: Nedspice research.

2

Current price

US$2,708/MT

…and price bottoms tend to occur around stock ratio highs

US$1,108/MT US$1,454/MT

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1983 1985 1987 1989 1991 1993 1995 1997 1999 2002 2004 2006 2008 2010 2012 2014 2016 2018

US

$ /

MT

Black Pepper FOB White Pepper DW FOB

3.3 years

2626

Note: Monthly price data as per 15-Oct-18.

1) Average of Vietnam, Indonesia and Brazil ASTA quality.

Source: Nedspice research.

1

Historical data suggests we have seen the largest part of the price drop, although it may take more time before reversal sets in

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1988 1988 1989 1990 1991 1992

US

$ /

MT

4.9 years

(67)% price

decrease in

3.3 years

(44%)

price decrease

82% of the

total drop

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1999 2000 2002 2003 2004 2005

US

$ /

MT

5.7 years

(70)% price

decrease in

3.3 years

(21)%

price decrease

92% of the

total drop

1

27

─ Planting of new pepper vines stagnated around the world as prices dropped, however production is still

expected to increase to 612 KMT (+37 KMT), driven by Vietnam and Brazil.

─ Growth in demand remains resilient at c. 2.6% p.a. (~12 KMT+), however at a total of 474 KMT it is well

below production levels.

─ The excess production will cause global stocks to increase further and it will likely take some time before

supply lines up with demand again, resulting in continuous downward price pressure.

─ Also historical data suggests that we may see a further decrease of prices over the next years.

─ Prices are already close to or below production costs in many countries, so the struggle for farmers who

concentrate on pepper may harden.

Concluding summary

28

Thank you