Trading in pepper futures has been paralysed after commodity exchanges launched new contracts specifying that the spice’s stocks should not have any presence of mineral oil.

According to a Forward Markets Commission (FMC) official, trading on Indian Pepper and Spices Trading Association (IPSTA) and the National Multi Commodity Exchange (NMCE) has virtually halted in view of the new specification.

The National Commodities and Derivatives Exchange (NCDEX) has discontinued offering pepper contracts, following a controversy over quality of pepper stocks in its six warehouses.

The quality specification was incorporated in the pepper contracts and re-launched a couple of months ago after traders complained about poor quality of stocks for October and November contracts last year. Data show that the open interest for December contract on the NMCE is zero and for November, it is seven tonnes. For October, it is 22 tonnes.

On the IPSTA, the open position is zero for all contracts between October and March.

According to the FMC official, who did not wish to be identified, no one is willing to trade since it will be difficult to meet the new specification of no presence of mineral oil in pepper.

Traces of mineral oil find their way into pepper when it is oil washed to remove the skin.

“Mineral oil is present in pepper that is traded in the physical market. What is sold in the spot finds its way in the futures market too. Therefore, no one is willing to take the risk after the re-launch with the new specification,” the official said.

According to the FMC official, the issue cropped up since a “big party” had built up positions, expecting pepper prices to soar. “When the prices did not rise as expected, they did not want to take delivery and began raising the quality issue,” the official said.

Pepper prices had been ruling high until the middle of September last year after exports jumped to a record during January-September.

“The FMC sent two officials, including one who has been with the Spices Board earlier, to look into the complaint. They found that the quality of the stocks adhered to the specification,” according to the official.

With complaints overstocks in six warehouses of the NCDEX, the Food Safety and Standards Authority of India came into picture. Tests by the authority showed that the stocks contained mineral oil, which was carcinogenic.

This led to a legal tangle with traders in Madhya Pradesh moving the High Court in Indore pleading for an order on the issue. However, they withdrew the petition last week after the NCDEX questioned its maintainability.

IPSTA, on the other hand, faced another peculiar issue. While giving permission to launch pepper futures in May this year, the FMC had fixed a daily ceiling of Rs 500 a quintal for movement of prices for futures. The limit was found unviable and following representation from the association to the FMC, it was raised to Rs 2,000 in July.

But trading was discontinued after July as the association faced difficulties in formulating new guidelines and specifications.

According to traders, Indian pepper is considered a premium product in the global market and so far, there has been no controversy over mineral oil till now.

>subramani.mancombu@thehindu.co.in

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