The Hindu Business Line : Spices Board urged to arrest pepper price fall

Kochi June 19 The pepper trade's move to seek the intervention of Spices Board to arrest the continuous fall in the pepper prices may be due to Forward Market Commission (FMC)'s recent introduction of two rules at a time when there is no change in the fundamentals.

The FMC has implemented special margin on both buyers and sellers besides restricting quantities to be taken delivery and given delivery, trading sources told Business Line.

Sharp Decline

They said due to these "faulty rules implemented by the FMC, black pepper market was showing a sharp decline both in spot and future deliveries at the national exchanges."

When prices were on the increase, to control the volatility, special margins were imposed not only on the buyers but also sellers were penalised. They were actual hedgers/investors who had purchased spot material and sold futures deliveries, which were trading at very high premium.

Thus, they said, the investors who had invested in the goods paid 10 per cent margin and also daily mark-to-market difference (M2M) to the exchange on every increase were further penalised by the special margin of 20 per cent on their sale position.

Additional Margin

This resulted in many small and medium investors liquidating their position and getting out of the business since they cannot pay further additional margin, which is out of their reach to invest further.

Thus, one section of the trade was discouraged and "forced to get out of the business leaving the field for mere speculators and gamblers to takeover the business through intra-day trading".

Now, the FMC has imposed second restriction limiting the brokers' position holding to 300 tonnes and individual clients to a maximum of 100 tonnes. When every broker/member have hundreds of clients it is impossible for them to cater the needs of genuine export buyers or hedgers within this limit.

Unfavourable Scenario

Therefore, many operators had to forcefully liquidate their position since the rule was implemented from June 16 onwards, they said.

Such an unfavourable scenario has been created here when Vietnam prices are ruling high for good quality pepper because they are converting it into white, while Indonesia and Brazil are holding back their prices. As a result, the Indian pepper prices are the most competitive in the international market.

Since nearby future deliveries, currently June and July, are trading below spot prices in both the national exchanges, exporters are venturing to buy those deliveries and selling overseas resulting in the stocks at the national exchanges getting reduced, they pointed out.

Thus, exporters will be taking delivery and shipping it out which is a very healthy scenario for Indian pepper industry as a whole, they claimed.

Pepper Economy

Unfortunately, they said, FMC had brought this new rule at a time when exporters were actively buying and taking delivery. The amendment of the rule will restrict exporters from taking delivery from the exchange which will effect India's exports very badly since availability of spot material in the open market is very limited while nearby future deliveries are trading at a discount.

In fact, exporters buying those deliveries for export are actually stabilising the market while the stocks are moved out of the country, which is actually helping the pepper economy in general, they claimed.

Intra-day Trading

Given this scenario the trade urged the Board to intervene immediately to protect the interest of the pepper economy in general and pepper exporters in particular to ensure that Indian pepper, which has gained the overseas market back after a long gap of eight years, is protected by giving FMC directions to withdraw their additional margin and quantitative restriction at the earliest, they said.

It should implement ways and means to control intra-day trading, which is running into thousands of tonnes without any margin being deposited by the players, who are actually distorting the market by such operations.

The All India Spices Exporters Forum and some leading brokers were understood to have taken up this issue with the FMC, they said.

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