Home / Opinion / Online-views /  Indian pepper futures’ prices drop even as global prices rise

Kochi: The price of pepper in the futures market in India dropped by around Rs1,633 a quintal last week, from a high of Rs16,334, even as pepper prices rose sharply in global markets. According to people in the pepper trade who did not wish to be identified, this happened because a few large companies pushed prices down so that they could buy at a lower price and meet their orders.

The efforts by the commodity exchanges to curb volatility by increasing the margin (or the amount traders need to cough up before entering a trade in the futures market) have failed, said Kishor Shamji, a pepper exporter and former president of the India Pepper and Spice Trade Association. Prices have fluctuated wildly in recent months.

Both the National Commodity Exchange of India (NCDEX) and the National Multi-Commodity Exchange (NMCE) raised the margin to 25% of the transaction value when a trader buys pepper and 20% when the trader sells, from 11% and 9.5%, respectively.

This was done on instructions from the futures market regulator, the Forward Markets Commission (FMC), to check volatility in the market as prices soared above Rs17,000 a quintal.

“This (the move to increase margins) has only helped in driving small and genuine investors out and forcing them to liquidate their positions," said Shamji.

The fall in prices last week ranged from Rs1,369 to Rs1,633 on actively traded May contracts (contracts offering to buy or sell pepper in the month of May). There was no reason for the fall since the price of pepper was ruling firm, at a high level, in all other markets.

The price of Indian pepper, which was quoted at $4,100 (Rs1.68 lakh) a tonne earlier in the week, fell to $3,950 in the global market. In sharp contrast, the price of Brazilian pepper was up from $3,400 to $3,950 and that of Indonesian pepper from $3,400 to $3,750. Even the price of lower quality pepper from Vietnam was up from $3,400 to $3,700.

An executive at one of the Indian commodity exchanges said, on condition of anonymity, that the instruction of the FMC to raise margins was unscientific. He added that had the FMC been serious about curbing speculation, it would have imposed a higher margin on positions or holdings in excess of a certain limit. That would have checked the speculative game of big traders, he explained.

Another Kochi-based trader T. Vidyasagar said the exchanges need to reconsider their decision on margins as it put genuine traders, hedgers and small investors at a disadvantage. If the regulator and the exchanges intended to curb the bullish trend, he said, the margins should have been raised on buying rather than on selling pepper.

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