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Chilies Market Report- September 2019

Paprika/Chili Crop Update


The global paprika industry is currently in a phase of transition. Chinese chili farmers have been shifting from traditional paprika to a slightly hotter hybrid variety and establishing a process to ensure the availability of Chlormequat-free paprika on the market.

U.S. chili and paprika growers continue to set the highest standards of food safety and quality. However, the industry is struggling to find new growing regions.

US- Ready for Harvest


U.S. paprika and chili harvest is starting this week and will continue for the rest of the year. In spite of a rough start to the season due to weather related issues, the growing conditions have been very favorable for the last two months. We expect the U.S. crop to deliver volume as planned.

The chili crop is now in the most critical period and the weather in the harvest months is important to get the product to the factory gate. The overall costs for the 2019 crop are expected to be higher because of increasing grower costs related to inputs, gas and labor costs.

Due to the tight inventory situation in 2019, more area is under production with slight expansion of growing into the Northern Mexico region. This area is reporting a close to normal crop despite a mid-season weather scare.

Organic paprika and chili production in the U.S. is also progressing well, with an increase in acreage in 2019 to support the increasing demand for U.S. origin organic paprika and chili peppers with farm-to-fork traceability.

As always, U.S. paprika and chilies remain the most reliable and traceable source of products in the industry. U.S. paprika has minimal issues with toxins (Aflatoxin and Ochratoxin), pesticides and do not use banned chemicals like Chlormequat in the growing process.

 

China- Ready for Harvest


The Chinese paprika crop has passed through a relatively calm growing phase with no weather issues. The area under the crop is marginally higher compared to the previous year and yields are reported to be better. We expect a 10-15% higher crop compared to last year. However, about 70% of farmers have changed the variety under cultivation from traditional paprika varieties to a varieties with higher color and a slightly hotter taste, suited mostly for oleoresin extractors.

Harvest is starting in patches, as farmers would like to start early and take advantage of the higher market prices. After a quiet 2019 procurement season, the oleoresin extractors in China are expected to purchase large quantities in the initial phase to take advantage of the higher color.

Farming practices in China are under high scrutiny as more buyers are aware of the high levels of Chlormequat (a growth inhibiting chemical applied to allow the paprika plant to grow more horizontally) in Chinese paprika and will be monitoring it. There are reports of buyers trying to acquire the harvest rights to farms that have not applied Chlormequat.

Demand for the Chinese crop is expected to be high with the oleoresin inventory at extremely low levels. The recent typhoon and the excessive damage to chili crops in China will also add to higher buying of paprika for domestic consumption. In addition, there are few other challenges which will impact prices from China. The Chinese Yuan has depreciated close to 5% over the
last month decreasing the cost to exporters. However, the VAT refund for paprika has reduced by 3% from June. Exports from China into the U.S. have an import tariff of 15% effective September 1, 2019.

Peru


Peru had a productive 2019 in paprika due to the challenges faced by European processors in securing Chlormequat-free paprika and the shortage of high-quality Mesa paprika from China. As a result, farmers were able to secure higher prices during the year, which has led to a marginal increase in production.

However, Northern Peru continues to struggle with the Aflatoxin and Ochratoxin challenges. Ica and Arequipa will see more paprika planted in 2019 due to demand from Europe, but due to the virus issues and excessive pesticide usage in southern regions, it has become crucial to seek new growing areas.

Other Origins


Other origins are contributing minor quantities into the overall trade flow and not in a position to impact the situation dramatically.

Future Outlook


  • Availability of high visual color paprika and chili pepper in U.S. will increase as the crop harvest starts and the processing is completed. Situation will be better starting Nov 1.
  • U.S. grown organic paprika and chili peppers are currently available but selling out quickly due to increased demand.
  • With the hybrid variety in large volumes, demand from Oleoresin extractors and domestic demand, traditional Chinese paprika free of Chlormequat and within limits on pesticides and toxins will be at a premium and limited in quantities.
  • Tariffs at 15% and increased scrutiny of quality will dampen the flow of paprika and chilies from China directly into the U.S. However, we expect products non-conforming to EU regulations will continue to be pushed into the US market.
  • The US will continue to be the most reliable primary supplier of traceable and sustainable paprika and Chilies.
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