The Hindu Business Line : Volatility in pepper futures: Demand for FMC intervention

Kochi March 15 Wide fluctuations taking place in the pepper futures market of late and certain other practices have led to demand for intervention by the Forward Markets Commission (FMC).

The fluctuations at the national level exchanges over the past several weeks has restrained exporters from venturing into making any commitments and farmers from parting with their produce.

The price difference between the two prime exchanges has become a cause for concern to the farmers and small traders. According to a report, a Kattappana-based trader has referred this issue to the FMC. Though the quality specifications are same and the delivery schedule is only within a gap of 5 days, the wide difference in prices between the two exchanges has put the farmers in a dilemma as to which one to follow as benchmark for marketing their produce. The main reason attributed by the trade for the difference is substandard material being held in one of the exchanges, Mr Kishor Shamji, former President, Indian Pepper and Spice Trade Association, told Business Line.

Exporters refrained from taking deliveries from such exchange due to their past experience.Even the Rs 9 difference may not be enough to cover the reprocessing charges or recoup the processing loss, he charged.

Though several thousand tonnes of pepper are being traded every day, leading to large trading volumes and net outstanding positions, the warehouses of the exchanges have stocks between 5,000 and 7,000 tonnes. For the past several weeks, small traders, processors who have sold to investors for delivery into the exchanges have been put to difficulties since the exchanges are unable to provide sufficient warehousing facilities. Only from March 5 arrangement has been made but that is not satisfactory and several trucks are waiting for unloading. The seller has to bear the waiting charges as well as the additional transportation cost since the warehouses are being nominated in different districts, over 50 km from Ernakulam district limit. Add to this is the absence of weighbridge facilities which also results in wastage of time, sometimes 48 to 72 hours, some small operators alleged.

Pepper futures crashed by Rs 700 - 750 a quintal on March 5 without change in fundamentals. However, the reason attributed was the crash in the equity market and therefore, there being common operators, the commodity market also crashed. Such wide and wild fluctuations hamper the interest of the small operators who are being wiped off from the trade or have to square off their business since they cannot withstand such fluctuation, they said.

It is also reported that some of the members of the exchanges through their franchises are permitting trade on cash basis. In the general interest of the trade and to protect the futures market, it is time that the regulator looks into the day-to-day operations of the pepper futures market at the national exchanges on a regular basis, according to small traders. In fact, the pepper growers from Wayanad and Idukki are said to have put forward such a demand.

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