You are here: Home » Markets » News
Business Standard

Pepper futures back but cheap imports worry traders

Contract futures trading in black pepper was suspended on complaints of mineral oil contamination

T E Narasimhan  |  Chennai 

Pepper

Black pepper is back on the derivatives-trading platform after nearly four and a half years with the National Commodity & Derivatives Exchange (NCDEX) relaunching the commodity.

The (MCX) also launched trading in futures contracts on Monday.
 
A big trader said it would take some time for traders to adopt and accept the new development after the past unpleasant experience of delivery and payment. “Generally it was felt that it was not investor-friendly,” said a trader.

He said exchanges had not only addressed these challenges, a new delivery centre was added in Karnataka. Earlier there were only two delivery centres in Kerala.

Contract futures trading in black pepper was suspended four and a half years ago after the (FSSAI) seized more than 6,000 tonnes from its warehouses on complaints of mineral oil contamination.

Heman Kuruwa, proprietor, Hemanand Spices, said commodities such as black pepper carried additional risks of seasonal arrivals and price fluctuations, attracting lower prices during the harvest season. A changing economic environment, changing demand and supply positions of agricultural commodities, and growing international competition require an efficient platform for risk management and price discovery, signifying a wider role for futures markets, according to him. “In this regard, the launch of black pepper futures contracts as an efficient risk-minimising tool is appreciable.”

Anuj Gupta, deputy vice-president (research) (commodities and currencies), Angel Broking, said, “On the first day of trading (Monday), pepper futures fell in the early trade on expectations of higher supplies in the domestic market. On Tuesday, however, prices were mildly positive.”

The development is expected to bring stability in pricing in the long run, but only a facility to hedge price risk in futures alone is not going to help, because a major problem is cheap import, says an industry representative.

They noted prices of pepper dropped to around Rs 450 per kg from Rs 600-650 a kg. While prices are dropping across the world due to increases in production in Vietnam, Cambodia, Brazil, and in other countries, the fall in India is far more than elsewhere, says Nishant R Gurjer, member, Executive Committee, United Planters’ Association of Southern India (UPASI), and one of the leading planters of pepper. While consumption is increasing production has been stagnated over the past five years, he says.

According to the Spice Board data, in 2012-13 pepper production was 65,000 tonnes and dropped to 55,500 tonnes in 2016-17. The drop was mainly due to industrialisation in pepper-growing areas and unfavourable weather conditions, among the other factors, in Kerala. Karnataka has overtaken Kerala to become the largest pepper-cultivating state.

India’s domestic demand for pepper is increasing at around 4 per cent per annum. Currently the demand is estimated at 60,000 tonnes per annum.
 
According to reports, pepper imports in general attract a duty of 70 per cent. Under an ASEAN (Association of South-East Asian Nations) agreement, a duty of 54 per cent is levied on pepper imported from Vietnam. 

However, under SAFTA (South Asian Free Trade Area), pepper from Sri Lanka attracts a duty of just 8 per cent, making Sri Lanka the entry point for a section of traders to route Vietnamese pepper.

RECOMMENDED FOR YOU