Can MIP recall spice up pepper re-export?

The Directorate General of Foreign Trade (DGFT) last week issued a circular exempting re-exporters from levy of minimum import price (MIP). This comes as a big relief to pepper re-exporters who have been fighting it out since January with the Commerce Ministry and DGFT. On July 19, the Kerala High Court had stayed DGFT’s order that fixed pepper MIP at ₹500/kg.

MIP was levied on pepper to check imports and lift domestic prices.

However, domestic pepper prices failed to react to MIP, and re-exporters’ business was also hit badly. With pepper imports restricted, unless it was priced at ₹500/kg on the invoice, the re-exporters had to bring the shutters down, as the international prices were ruling at ₹200/kg.

Given that these businesses imported pepper berries to only export them again after value addition, bringing them under MIP was not reasonable.

Re-exporters import pepper through Advanced Licence Authorisation (where a bond is given to the Centre that 15 per cent value addition would be done on the CIF (cost, insurance and freight) value of the import, and re-exported) or by setting up an export-oriented unit (EOU)/SEZ. In both cases, pepper does not enter the domestic market.

Now, after more than six months of running from pillar to post, the pepper re-exporting industry has managed to get an order in its favour.

DGFT has notified that imports under the advance authorisation scheme are ‘free’ and exempt from MIP when imported for extraction of oleoresin or for re-export.

The business loss since January has been significant for pepper re-exporters. It has not been just a one-time loss in revenue, but also some permanent loss of market share, claims the industry.

Market share loss

A re-exporter said: “The industry has lost about 3,000 tonnes of business in pepper. We have shown the world now that Vietnam can be an alternative supplier for Indian processors.”

In January-June this year, Vietnam exported 1.32 lakh tonnes of pepper, a 6 per cent increase from its last year record, according to a highly placed market source.

India’s market share in exports in the processed value-added pepper market is 40 per cent. But in the last six months, India couldn’t honour its commitment to many of its customers, who ended up sourcing it from processors from Vietnam and Indonesia.

Prices continue to slide

Pepper prices in the international as well as the domestic market have continued to drop over the recent months. While MIP hit genuine re-exporters, it couldn’t check illegal imports from Sri Lanka.

Cheaper pepper from Vietnam continues to flood the domestic market via Sri Lanka. While direct imports from Vietnam attract a duty of 52 per cent under the ASEAN agreement, if it comes via Sri Lanka, a lot is saved on duty.

Under the Indo-Sri Lanka Free Trade Agreement (ISFTA), India could import 2,500 tonnes of pepper a year from Sri Lanka without duty; and above the quota, a duty of 8 per cent would be imposed as per the South Asian Free Trade Area (SAFTA).

In the international market, prices are currently at around $2,800/tonne (about ₹190/kg). A weak rupee has somewhat lowered the pain of farmers by cushioning the price decline.

In the domestic market, prices have dropped, from ₹375/kg in March to about ₹320/kg now.

All those who held the pepper stock hoping prices would increase following MIP, have been disappointed. Selling of stocks by hoarders and large growers in the last one month has been hurting the price.

BusinessLine had indicated in an article published on April 8, 2018 (Pepper curbs are too hot to handle) that there was a risk of pepper prices going down further, given the high level of global surplus supplies, and that farmers who held stocks may end up burning their fingers.