Unless you can figure a way to rub it into the animals eyes, it is not going to be very effective anyway. Black and white pepper doesn't have enough of the right stuff anyway(if it has any). Which would you rather rub on your face; ground black pepper, or diced habinaros?

Hounds do suck up a lot of stuff into their sniffer, so I suppose there is just enough plausibility to make that work in the movie. Besides, it IS cool hand Luke.