Commodities: Nutmeg producers tackle burning issue

THE smell of burning nutmeg - probably something like the odour of vegetable oil left cooking in a saucepan too long - has been filling the air in Grenada and Indonesia.

Exporters in the two countries, long frustrated by flagging prices, decided to take the direct approach and set fire to stockpiles.

Indonesia, which produces 70 per cent of the world's nutmeg, burned 300 tonnes last month and Grenada, with the remaining 30 per cent, burned and destroyed 350 tonnes.

Traders in Rotterdam said the price jumped immediately, lurching from record lows of dollars 550 a tonne to more than dollars 700 in a week, and caused some of them to make panic purchases of nutmeg at the higher price.

But the destruction of 750 tonnes of low-quality nutmeg, when Indonesia holds about 2,000 tonnes in storage and Grenada as much as 5,000 tonnes, was not enough to keep prices up for long and they soon fell back.

Mike Clarke, purchasing director of McCormick UK, the world's largest spice company and maker of herbs and spices under the Schwartz label, said: 'Burning nutmeg is not going to do much. They would have to burn trees to have a real effect on prices.'

Such short-term price fluctuations have had little effect on big nutmeg buyers such as McCormick, because they have taken advantage of low prices and a cheap dollar to buy nutmeg on contract for as far as two years into the future.

For ordinary consumers, violent price movements mean even less. Most British supermarkets keep individual spice prices steady over months or years, in contrast to commodities such as coffee or petrol.

At Waitrose, 50g of ground nutmeg costs 79p and 50g of black pepper 69p, even though world nutmeg prices are at record lows and world pepper prices are the highest since last year.

In the Netherlands, retailers charge the same price for all spices by taking an average price.

Nutmeg is the brownish-grey seed of a tropical tree native to the Spice Islands, or the Moluccas, of Indonesia. The Romans used it as incense, for its pungent fragrance, and grated nutmeg has also been used in aromatic sachets.

In the 1600s it was an expensive commercial spice traded by Western countries, and was shipped on fast clipper ships by traders such as the Dutch East India Company.

It is a relatively minor spice nowadays: world consumption of nutmeg is 10,000 tonnes a year, compared with black and white pepper, the most widely used spice, at 150,000 tonnes. Even pepper consumption is small compared with chillies: India, the biggest producer and consumer of spices in the world, grows and eats 600,000 tonnes of chillies every year.

Today nutmeg is used most often in baking, confections, meat and sausages, and is popular as a seasoning in vegetables such as spinach. It should be treated with caution, because as little as two teaspoons of the stuff has been reported to cause hallucinations, thought disorders, excessive thirst and psychotic symptoms.

But only about 10 per cent of the nutmeg consumed each year is bought from supermarkets. The rest is used in industrial food production, especially as a meat flavouring.

Low prices hit the West Indian island of Grenada particularly hard, because the former British colony depends on the spice for 40 per cent of its gross national product.

Prices have been slipping since 1987, when a cartel formed by the two countries unravelled after Indonesia began smuggling nutmeg to Singapore. The stocks they built in the mid-1980s, when the cartel kept prices high, have depressed the market ever since.

Theo Nieland, a trader with Man Producten, one of the world's biggest spice traders, says: 'We are still making money on nutmeg, but on volumes, not on the sales price. It is a difficult market.'

Nutmeg seems destined to occupy a humble position in the spice world and, as with other spices, will be increasingly controlled by a small number of producers and manufacturers.

Stricter quality and health regulations in Western countries have put many small nutmeg growers and traders out of business, leaving the big firms like McCormick in control.

Meanwhile, Grenada and Indonesia may be tempted by the brief price rise to burn more surplus nutmeg. Hold your nose if you are in the area.