Commodities

Report of US ban on clove-flavoured cigarettes hits spice's price

G.K. Nair Kochi | Updated on May 02, 2012 Published on May 02, 2012

clove

The cloves market appeared to head towards a crash following reports of ban on sales of clove-flavoured cigarettes by the US, which may lead to a sharp fall in its demand at a time when the crop in Indonesia is said to be a bumper one.

Meanwhile, the WTO Appellate Body on a formal petition filed by the Indonesian authorities against the US decision to the WTO in April 2010, decided on April 4 that “the US Law banning the sale of clove-flavoured cigarette to discourage children from smoking was unfair to Indonesia because menthol cigarette can still be sold in the US.”

WTO's Dispute Settlement Body ruled in September last year that “Indonesia's claim about the discriminatory nature of the law was true and that, therefore, the US had breached international trade rules, especially the Technical Barrier to Trade (TBT) Agreement, by favouring locally made menthol cigarettes.”

Even though Indonesia has won the case against the US, export of its cigarettes might face a threat from the fact that “many countries have signed the Framework Convention for Tobacco Control under the WHO supervision,” an overseas report said. Add to this Brazil is also reported to have banned cigar sales.

Indonesia's export of cigarettes valued at $284 million in 2009, $357 million in 2010 and around $400 million in 2011. Therefore, the ban would affect the offtake of cloves by the Indonesian cigar industry which is already claimed to be holding stocks for two years.

Adding fuel to fire the world's major cloves producing country has a bumper crop with an estimated production of over 80,000 tonnes this year. Similarly, crop in other origins are also said to be normal or above normal. As a result, the trade fears of a huge surplus this year leading to a potential sharp fall in the prices.

According to upcountry trade sources, there has been panic selling in Madagascar as Comoros new crop has started arriving at the market.

Madagascar exporters were reportedly selling at $9,000 a tonne currently while Comoros is expected to open at $6,000-7,000 a tonne as the poor growers there may not wait, they claimed.

It is a cyclical factor that the cloves crop will be good in every third year and “we have experienced it several times in the past,” they said.

For the past couple of years the growers were getting good prices and any fall in it now to below remunerative levels would have a serious impact on the next crop, growers in Nagercoil told Business Line. The cost of inputs also increased correspondingly following the rise in prices, they added.

Indian consumption is estimated at 12,000-15,000 tonnes and the country is a major consumer of cloves and as the normal indigenous production is estimated at somewhere between 1,500-2,000 tonnes, India continues to remain a net importer.

Prices in the domestic markets currently are Rs 611 a kg for Colombo, Rs 711 for Zanzibar, and Rs 675 a kg for Madagascar,. “There are only sellers and buyers are not in sight,” Bangalore based a dealer told Business Line.

“If the present trend continues, the market will plummet to below Rs 500 a kg levels soon,” they claimed.

Last year this time markets were at $21,000-25,000 a tonne following failure of the Indonesian crop and against this the market at present is at around $9,000 a tonne with indications to fall further to $6,000-7,000 a tonne, the trade said.

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Published on May 02, 2012
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