Cointegration Analysis of the World's Black Pepper Export Market Among Major Producers

Pepper, the world's most used spice has been widely used ever since ancient times. This spice has a high value in terms of monetary due to its medicinal properties. This berry-like spice has never lost its popularity as the world's most traded and used spice. In response to its market value, a study was conducted to analyse the market price movement of black pepper among four world major producers – India, Indonesia, Vietnam, and Malaysia. This study addresses the co-movement among these four major pepper-producing markets by setting the world’s top producer Vietnam, as the dependent variable whilst India, Indonesia, and Malaysia are set as the independent variables. Due to the high price fluctuation of this storable commodity and significant price diversity in different markets, market integration among major producers is essential to study. The unison among the global pepper market is important, not only regarding producers and consumers but also in terms of profit maximization and economic risk management. The study uses the Johansen cointegration approach and the vector error correction model to analyse and evaluate the presence and strength of co-movement of price amongst the market, from the perspective of export freight on board price. The study has found that there are co-movements in the market—Vietnam, India, Indonesia, Malaysia, and Sri Lanka, despite obvious price differences and frequent fluctuations. The markets are found to be operating as a single organism. The convergence of pepper prices is found to be significant, and the model is stable for the export of black pepper.