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IPSTA clarifies

Kishor Shamji, President, India Pepper and Spice Trade Association

This is with reference to `Commodity bourses, trading volumes low' (Business Line June 26). The article has compared the trading volumes in all the exchanges without considering the intrinsic differences among various commodities. It is arbitrary and giv es a false picture of the status of the various exchanges.

World pepper production, consumption, export from various countries and Indian production, exports and turnover in the exchange figures show that India's share in the world trade in pepper exports has declined in the last year and is also reduced in the current year. Further, world production of pepper has increased, leading to a fall in prices. IPSTA futures prices have been in backwardation, indicating this fall in prices in the last one year.

During backwardation, it has been noticed that the trading activity reduces as farmers do not find it beneficial to hedge their positions as future prices are lower than spot and near-spot contract prices. During contango situation, usually, the turnover is high as the trading activity increases. Contango situation prevailed in 1996-97, 1997-98, 1998-99 and 1999-2000. The turnover was high in all these years except 1999-2000. This is mainly due to delay in opening of contracts due to implementation of t he guarantee mechanism in the Domestic Division.

Importers are avoiding building up inventory as they feel that they will get better rates in the future. They have open positions without forward cover. They are buying on spot basis. Exports having declined, the exporters have little forward sales and s o do not have to hedge in IPSTA. This leads to exporter-hedgers keeping away from the exchange trading. Without genuine hedgers, speculation also tends to reduce.

We also wish to highlight that the turnover at IPSTA is usually double the production figures of that year in India. This shows the importance of IPSTA in pepper industry and is a model for other commodity exchanges in India.