Supply chains: The pressure in the spice industry is increasing

At Beijing's famous Sanyuanli Market, a vendor points to his full spice rack.

Supply chains: The pressure in the spice industry is increasing

At Beijing's famous Sanyuanli Market, a vendor points to his full spice rack. "Everything is getting more expensive," he says. Raw materials, transport, salaries. And the supply chains are also strained by the pandemic.

The costs of the industry in China, Germany's most important spice supplier, have been rising for two years. An example: The freight costs for containers from China to Europe in the period from mid-2021 to mid-2022 were five times higher than before the pandemic. In November it was still more than double.

Energy, transport and packaging are more expensive

The problem: Even in Germany's supermarkets, there is no outlet for this cost pressure. Because of the increased cost of living, customers are keeping their money together. And the trend towards cooking at home, which was supposed to pacify wanderlust during the pandemic, is ebbing away. The industry sounds the alarm.

"There is currently an overall economic crisis situation that has never existed before," says the Association of the Spice Industry. On the one hand there is a lack of fertilizers, raw spices and weakening demand. On the other hand, retailers would have to bear the escalating costs for energy, transport and packaging. "Every single aspect shakes the economic production chain," it continues.

Laura Brandt feels directly how much customers are willing to pay for their spices. At her start-up Yummy Organics, a manufacturer of fair trade spices, customers only pay as much as they deem appropriate, but at least one euro. Every cent that exceeds the internal costs should flow into the growing countries. "Recently, however, demand has fallen dramatically," says the founder.

"We are particularly hurt by the collapse in sales with corporate customers," she says. These included, for example, unpackaged shops, many of which had gotten into trouble. On the other hand, it is becoming increasingly tricky to get the right spices from the countries of origin. "Fair, organic and high quality - this combo is hard to find."

China and Madagascar are the most important trading partners

This also applies to Sri Lanka, from where Laura Brandt gets her spices. The island state south of India was already short of fertilizers before the war, after the government had tried in vain to convert all agriculture to organic without a long transition period. And when the camps filled up again, the war and sanctions hit important fertilizer imports from Belarus, said Sarada de Silva, head of the local spice traders' association "Spice Council". Then there are the transport costs: a container that cost $4,000 before the war now costs $20,000 in freight costs.

In 2021, Germany imported most of the spices and herbs by sea from China, such as chili and paprika. The second most important trading partner is Madagascar, from where vanilla beans and cinnamon sticks find their way into German kitchens. It is followed by Vietnam, Brazil, Indonesia and India. 154,000 tons of herbs and spices worth almost 600 million euros came into the country in 2021. No other EU country imported more than Germany.

Last year, consumers had to dig deeper into their pockets for the colorful powders. As can be seen from current inflation data, they paid almost ten percent more for their spices last December than a year earlier. This means that inflation was about as high as overall inflation - but also lower than for other foods.

Seal of sustainability

The increased costs in the distance are therefore only compensated to a limited extent. Julius Wenzig warns that because the value chains for spices usually start in developing countries, they are particularly vulnerable to violations when it comes to sustainability. Wenzig researches the supply chains of spices at the University of Witten/Herdecke. "Similar to cocoa, it is a critical raw material that you have to look at carefully," he says. This applies to human rights as well as to environmental protection.

Consumers in this country find it difficult to understand how sustainably spices have been produced. Seals such as fair trade or organic can offer a rough orientation. Surveys have shown that products with both seals in particular are produced sustainably, as Wenzig says. "Similar to the organic sector, however, the demand for such spices has recently decreased." This reduces the incentive for producers to grow their spices sustainably.

It is likely that in the end the small farmers will have to pay for the hardships of the industry, as Felix Gies from the fair trade dealer "El Puente" says. "Ultimately, the exploded costs will probably be passed on to the weakest link," says Gies. These are mainly the small farmers who are not organized in large cooperatives. It is all the more important that traders and producers enter into long-term and fair partnerships. "Then both sides will get through the crises well."