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Re- launched pepper futures contracts at the National Multi-Commodity Exchange [NMCE] as well as regional counter, India Pepper and Spices Trade Association [IPSTA], has evoked very poor response due to stringent quality measures and lack of confidence among the pepper fraternity. IPSTA, without a pan India reach and run down software, is having very little business, only in a range of 25-30 tones daily. NMCE also failed to attract participants even after a month of the re-launch.
Hedgers are not willing to deposit pepper for physical delivery because of the stringent quality specifications agreed upon by IPSTA and NMCE with the Forward Markets Commission [FMC] . The strict quality parameters hinder the stake holders of the business in actively trading in contract business. Arbitragers and exporters are shying away from both the exchanges and this may pave the way for a slow death of futures trading of pepper.
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FMC had granted permission to re-start the contracts in June. FMC had directed to stop futures trading in pepper in May due to a series of complaints over the quality of stocks maintained at various warehouses. Because of mineral oil content in the stocks, trade was in serious trouble, delivery was very nominal and FMC was forced to stop trading. Later IPSTA had approached FMC for re-starting contracts with an assurance to maintain the quality of pepper and got permission. IPSTA had started six contracts beginning from June onwards and later NMCE.
Experts told then that maintenance of quality is a serious issue in the case of black pepper and if exchanges can ensure the quality and keep it mineral oil free that would be beneficial for the industry in general and good for the credibility of Indian pepper in the overseas markets.
According to a leading exporter, the trade could not cop up with the strict quality parameters of physical delivery agrees up on by NMCE and IPSTA with FMC. As per the specifications, the stocks have to be completely free from visible mouldy berries which can be attained only by steam washing and sterilizing. These are very costly affair and only a few exporters have these kind of machines which is used for their own exports.
Kishore Shyamji, former president, IPSTA and a leading exporter told Business Standard that the stringent quality measures disrupts business in futures trading. ‘Money power’ still rules and controls the business to a great extend, this is not good for doing healthy business. Instead of price discovery, price manipulations occurs several times, some leading traders said. Also FMC has fixed a daily maximum price fluctuation of Rs 500/tone for IPSTA, while 4 per cent price variation is allowed in NMCE. So literally people are afraid of trading with IPSTA as the fluctuation level is limited compared to NMCE. This disparity had affected the volume of business very badly at IPSTA, Kishore added. IPSTA has approached FMC to enhance the limit and the Commission has raised this level to Rs 1000/tone. Yet this is not implemented.
Giby Mathew, managing director, Celebrus, a Commodity broking firm said that stringent quality conditions affect the trade very badly as it is a very costly affair to maintain such high quality. But in the long run this will be inevitable as quality is a serious concern in the overseas markets. We have to change according to the global market requirements, he said.
Meanwhile, the quality check of the stocks that are having mineral oil content is progressing on a slow pace as samples were tested from 2 warehouses. Stocks of 5 warehouses, where around 7000 tones of pepper is stocked, have to be cleared.
