The Hindu Business Line : Falling pepper rates: Need for long-term perspective plan

Instead of identifying and addressing structural issues that stymie pepper market growth, promotional agencies are content with seeking trade curbs.

Mumbai , June 1

THE Centre seems to have lost its way in attempting to rein in falling pepper prices.

Many of its recent actions to support the market have been ad hoc. Despite a series of measures including market intervention and curbs on imports, presumably taken under pressure from domestic trade lobby, pepper prices have remained stubbornly low.

Even import of pepper as raw material under advance licensing for export production of high-value oleoresins has been stopped, dealing a blow to the country's efforts to promote export of value-added products.

The price support operation of Kerala Government too did not succeed in boosting the market sentiment.

The current price level - Rs 60-70 a kg - has not been reached all of a sudden. It has been in the making for at least one year now. Average price in 2003-04 was Rs 74/kg and in 2004-05 at Rs 70/kg. Indeed, average price during October 2004 was Rs 64/kg.

Global demand-supply fundamentals suggest that pepper prices will continue to remain relatively subdued. Output has improved in major producing countries such as Vietnam which follow an aggressive marketing and pricing policy for exports, something that India has failed to emulate. On the other hand, global consumption demand has remained sluggish.

Prior to integration of the Indian market with the global market, pepper was a commodity with tremendous price volatility. Traders made pots of money playing the market and taking advantage of rapidly rising prices. Little of the price benefit flowed to growers.

Restrictions on imports, limited competition from other origins and poor flow of trade information helped traders enjoy large profits.

All this has changed in recent years. Gone are the days of virtual Indian monopoly. Even the much talked about, but unsustainable, price premium for some of top Indian varieties has vanished as buyers no more bother about varieties and origins, but are concerned about quality specifications and price.

It is unfortunate, instead of identifying and addressing the structural issues that stymie the natural growth of the pepper market, promotional agencies are content with seeking trade curbs whose effect is largely superficial.

No wonder, pepper exports from the country have declined to alarming levels.

From 21,600 tonnes valued at Rs 179 crore in 2002-03, pepper export declined to 16,700 tonnes (Rs 144 crore) the following year. Last fiscal (2004-05), shipments totalled 13,000 tonnes valued at Rs 111 crore.

A significant part of these exports was accounted for by foreign origin pepper, imported for export purposes (about 15,000 tonnes each in 2002-03 and 2003-04).

Pepper is one of the 300 sensitive items the import of which is regularly monitored by the Directorate General of Foreign Trade. The Government has held that a liberal import policy cannot be blamed for the fall in domestic prices. Current domestic prices are more the result of poor export competitiveness and sluggish demand.

For local traders who are so used to rising prices in the past and profiting from it, a long bear market has become unacceptable.

It is perhaps time for them to learn to go "short". If the market conditions of last four years are any guide, Indian black pepper is unlikely become truly globally competitive any time soon.

A long-term perspective plan to produce genuine export surplus at competitive prices is the only way forward.

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