Title page

SR. NO. PARTICULARS PAGE No.

1 Acknowledgement

2 Executive summary

3 Need for the study

4 About commodity and commodity market

5 Commodity derivatives

6 Commodity trading

7 Indian spices

8 pepper

9 Cumin seed

10 chilli

11 conclusion

12 Reference

In this report we would try and look what are commodity markets, how they function

and all about spices and their future estimation.

 

For this the report is divided in seven sections

 

In the first & second section, we would see what is commodity & why is there need

for commodities markets, what are the different factors that affect the commodity

prices, we would see what are commodities markets and what are different types of

commodities traded on exchanges.

In the third section we will look at the different commodity exchanges in India and

the commodities traded there.

In the fourth section we would look at the functioning of commodities market, for this

we will take example of one of India's primary commodity exchange National Multi

Commodity Exchange (NMCE), in this section we would see the membership

requirements, we would see how the commodities are traded in commodity

exchanges, how the delivery of commodities is done and how the issues related to

quality of assets and warehousing of commodity are carried out. We would also see

the price trends of various commodities traded on NMCE.

In the fifth section we would see the regulatory frame work for commodities market.

In the sixth section we would see the history about Indian spices, regulations of

spices board, state wise production of spices & export scenario of spices.

At last in the seventh section we would look the main 4 commodities that are traded

in India most and estimate the future scenario of these commodities.

For the former, commodity is a largely homogeneous product, traded solely on the

basis of price, whereas for the latter, it refers to wares offered for exchange.

In the original and simplified sense, commodities were things of value, of uniform

quality, that were produced in large quantities by many different producers; the

items from each different producer are considered equivalent. It is the contract and

this underlying standard that define the commodity, not any quality inherent in the

product. One can reasonably say that food commodities, for example, are defined by

the fact that they substitute for each other in recipes, and that one can use the food

without having to look at it too closely.

At present, all goods and products of agricultural (including plantation), mineral and

fossil origin are allowed for futures trading under the auspices of the commodity

exchanges recognized under the FCRA. The national commodity exchanges have

been recognized by the Central Government for organizing trading in all permissible

commodities.

Characteristics of commodity

In Marx's theory, a commodity has value, which represents a quantity of human

labor. The fact that it has value implies straightaway that people try to economise its

use. A commodity also has a use value, an exchange value and a price.

It has a use value because, by its intrinsic characteristics, it can satisfy some

human need or want, physical or ideal. By nature this is a social use value, i.e.

the object is useful not just to the producer but has a use for others generally.

It has an exchange value, meaning that a commodity can be traded for other

commodities, and thus gives its owner the benefit of others' labor (the labor

done to produce the purchased commodity).

Price is then the monetary expression of exchange-value (but exchange value

could also be expressed as a direct trading ratio between two commodities

without using money).

The process of economic liberalization in India began in 1991. As part of this process,

several capital market reforms were carried out by the capital market regulator

Securities and Exchange Board of India. One such measure was to allow trading in

equities-based derivatives on stock exchanges in 2000. This step proved to be a shot

in the arm of the capital market and volumes soared within three years. The success

of the capital market reforms motivated the government and the Forward Market

Commission (the commodities market regulator) to kick off similar reforms in the

commodities market. Thus almost all the commodities were allowed to be traded in

the futures market from April 2003. To make trading in commodity futures more

transparent and successful, multi-commodity exchanges at national level were also

conceived and these next generation exchanges were allowed to start futures trading

in commodities on-line.

Commodities exchanges have seen a surge in commodity futures volumes in the last

few years. This rise in volumes has been led by bullion (gold and silver) trading.

Today a whole lot of commodities are available for trading in futures and the list is

getting bigger by the day. No wonder then that the commodity futures market is

being viewed as a significant business segment by many– businessmen, investors,

institutions, brokers, banks etc.

Of course there are still millions of Indians who are not aware that commodities other

than gold and silver can also be traded in on commodity exchanges like equity.

Fewer still know that commodities can be traded on-line!

In this part of project I tried to cover every aspect of commodity trading and have

been written in a language that is simple and lucid.

I am certain that this will help me a long way in generating awareness about

commodity trading for me. The various money-making trading strategies for the

commodities market discussed here it will also be of immense help to those billion

investors who are already trading in commodities.

1) How trading started at commodity exchanges?

Most of the commodity exchanges of today were started in the late 19th century and

the early 20th century. To understand how the commodities market works in India,

we need to understand how it works outside India. That is because the ever-

increasing pressure on the other global markets to integrate with each other and with

the US markets, and the liberalization process that started in our country in the early

90s necessitate the study of global markets. Let us thus take a look at how it all

began.

It all started in an American city called Chicago. In the 1840s, Chicago had become a

commercial centre with railroad and telegraph lines connecting it with the East.

Around the same time, the McCormick reaper was invented which eventually led to

higher wheat production. Farmers from the Midwest came to Chicago to sell their

wheat to dealers, who, in turn, shipped it all over the country.

The Midwest farmers brought their wheat to Chicago hoping to sell the same at a

good price. The city had few storage facilities and no established procedures either

for weighing grains or for grading the same. In short, the farmers were often at the

mercy of the dealers.

The year 1848 saw the opening of a central place where the farmers and dealers

could meet to deal in "spot" grain, i.e. to exchange cash for immediate delivery of

wheat.

The futures contract, as we know it today, evolved as the farmers (sellers) and the

dealers (buyers) began to commit to future exchanges of grain for cash. For instance,

a farmer would agree with a dealer on a price to deliver to the latter 5,000 bushels of

wheat at the end of June. The bargain would suit both the parties. The farmer would

know how much he would be paid for his wheat while the dealer would know his costs

in advance. The two parties would even exchange a written contract to this effect

along with perhaps a small amount of money representing a "guarantee.”

Such contracts became common and were even used as collateral for bank loans.

They also began to change hands before the delivery date. If the dealer decided that

he did not want the wheat, he would sell the contract to someone who did. Or the

farmer who didn't want to deliver his wheat would pass his obligation to another

farmer. The price would go up and down, depending on what happened in the wheat

market. In the event of bad weather, the people who had contracted to sell wheat

would hold more valuable contracts because the supply would be lower; if the

harvest were bigger than expected; the seller's contract would become less valuable.

It wasn't long before people who had no intention of ever buying or selling wheat

began trading the contracts. They were speculators, hoping to buy low and sell high

or sell high and buy low.

This saw the birth of the first central exchange in 1848 in Chicago under the name

Chicago Board of Trade (CBOT). The emergence of the derivatives market as an

effective risk management tool in the 70s and the 80s resulted in the rapid creation

of new exchanges and the expansion of the old ones.

These old exchanges are located mainly in developed nations. However a few were

created in developing countries too. The Buenos Aires Grain Exchange in Argentina,

established in 1854, is one of the oldest in the world.

2) The concept of trading in commodity futures in India.

You will be surprised to hear that the first organized futures market in India was set

up way back in 1875 in the form of the Bombay Cotton Trade Association. However

the Bombay Cotton Exchange founded in 1893 was the first organized commodity

exchange in India.

The Gujarati Vyapari Mandali in 1900 carried futures trading in oilseeds: groundnut,

castor seed and cotton. The Chamber of Commerce at Hapur set up in 1913 was the

most notable futures exchanges for wheat. Futures trading in bullion began in 1920

in Bombay. In 1919 jute trading was conducted by the Calcutta Hessian Exchange.

But organized futures trading in raw jute began only in 1927 with the establishment

of the East Indian Jute Association.

Most of these exchanges traded in region-specific commodities and the lack

of a national level exchange that could offer multiple commodities at the

same platform was felt time and again. So about a couple of years back, at

a time when 21 regional exchanges in India were offering various

commodities for trading the government came out with the national

commodity exchanges, similar to the BSE & NSE, to come up and let them deal in

commodity derivatives in an electronic trading environment. These exchanges are

expected to offer a nation-wide anonymous, order driven, screen based trading

system for trading. The Forward Markets Commission (FMC) will regulate these

exchanges.

Consequently four commodity exchanges have been approved to commence

business in this regard. They are:

1. Multi Commodity Exchange (MCX) located at Mumbai

2. National Commodity and Derivatives Exchange Ltd (NCDEX) located at

Mumbai.

3. National Board of Trade (NBOT) located at Indore

4. National Multi Commodity Exchange (NMCE) located at Ahmedabad.

3) Global commodities derivatives exchanges

Globally commodities derivatives exchanges have existed for a long time. Table

below gives a list of commodities exchanges across the world. The CBOT and CME

are two of the oldest derivatives

Chicago Board of Trade

Chicago Board of Trade was established in 1948 and has trading in agricultural produce, interests, Dow, metals and US treasuries. Soya complex, wheat and corn prices across the world are referenced here. It has both electronic as well as open cry. It trades both in futures as well as options. In 2005 it became a public traded NYSE listed company.

New York Board of Trade (NYBOT)

New York Board of Trade (NYBOT) is the world's largest commodities exchange for Coffee, Sugar, Cotton and Frozen Concentrated Orange Juice. The exchange was founded as the New York Cotton Exchange in 1870. NYBOT also facilitates trades in foreign currencies and derivative indices for equities.

Kansas Board of Trade

Kansas Board of Trade in US specializes in hard red winter wheat. Hard winter wheat constitutes the maximum of US production. This exchange is benchmark for bread wheat prices.

Winnipeg Commodity Exchange

Winnipeg Commodity Exchange is located in Manitoba and trades only in futures and options of canola, wheat and barley. 

Dalian Commodity Exchange

Dalian Commodity Exchange in China trades in corn and soybean. The exchange is planning to introduce futures and options in crude oil, power, steel and plastic. 

Bursa Malaysia Derivatives exchange

Bursa Malaysia Derivatives exchange trades in crude palm oil futures, crude palm kernel oil futures, Index futures and options and government securities.

Singapore Commodity Exchange (SICOM)

Singapore Commodity Exchange (SICOM) specializes in rubber and robusta coffee.

Chicago Mercantile Exchange (CME)

Chicago Mercantile Exchange (CME) is the largest futures exchange in US. The exchange trades on interest rates, equities, foreign exchange and agricultural commodites. It has both open cry as well as electronic trading.Agricultural commodities traded on the exchange include dairy products (butter, milk cheese) and live stock futures (cattle and pork).

London Metal Exchange

London Metal Exchange trades in Metals and non ferrous metals like aluminium, copper, lead, nickel, tin and zinc. Consumers as well as producers of metals use the official prices of LME for their long term contracts pricing. There are over 400 LME approved warehouse in some 32 locations covering USA, Europe, the middle & the Far East. (At the moment there is none in India) Has both open outcry as well as electronic.

New York Mercantile Exchange (NYMEX)

Evolution of the commodity market in India

Bombay Cotton Trade Association Ltd., set up in 1875, was the first organized futures

market. Bombay Cotton Exchange Ltd. was established in 1893 following the

widespread discontent amongst leading cotton mill owners and merchants over

functioning of Bombay Cotton Trade Association. The Futures trading in oilseeds

started in 1900 with the establishment of the Gujarati Vyapari Mandali, which carried

on futures trading in groundnut, castor seed and cotton. A future trading in wheat

was existent at several places in Punjab and Uttar Pradesh. But the most notable

futures exchange for wheat was chamber of commerce at Hapur set up in 1913.

Futures trading in bullion began in Mumbai in 1920. Calcutta Hessian Exchange Ltd.

was established in 1919 for futures trading in raw jute and jute goods. But organised

futures trading in raw jute began only in 1927 with the establishment of East Indian

Jute Association Ltd. These two associations amalgamated in 1945 to form the East

India Jute & Hessian Ltd. to conduct organised trading in both Raw Jute and Jute

goods. Forward Contracts (Regulation) Act was enacted in 1952 and the Forwards

Markets Commission (FMC) was established in 1953 under the Ministry of Consumer

Affairs and Public Distribution. In due course, several other exchanges were created

in the country to trade in diverse commodities.

The Kabra committee report

After the introduction of economic reforms since June 1991 and the consequent

gradual trade and industry liberalization in both the domestic and external sectors,

the Government of India appointed in June 1993 a committee on Forward Markets

under chairmanship of Prof. K.N. Kabra. The committee was setup with the following

objectives:

1. To assess

(a) The working of the commodity exchanges and their trading practices in India and

to make suitable recommendations with a view to making them compitable with

those of other countries.

(b) The role of the Forward Markets Commission and to make suitable

recommendations with a view to making it compatible with similar regulatory

agencies in other countries so as to see how effectively these agencies can cope up

with the reality of the fast changing economic scenario.

2. To review the role that forward trading has played in the Indian commodity

markets during the last 10 years.

3. To examine the extent to which forward trading has special role to play in

promoting exports.

4. To suggest amendments to the Forward Contracts Regulation) Act, in the light

of the recommendations, particularly with a view to effective enforcement of

the Act to check illegal forward trading when such trading is prohibited under

the Act.

5. To suggest measures to ensure that forward trading in the commodities in

which it is allowed to be operative remains constructive and helps in

maintaining prices within reasonable limits.

6. To assess the role that forward trading can play in marketing/ distribution

system in the commodities in which forward trading is possible, particularly in

commodities in which resumption of forward trading is generally demanded.

The committee submitted its report in September 1994. The recommendations of the

committee were as follows:

The Forward Markets Commission (FMC) and the Forward Contracts

(Regulation) Act, 1952, would need to be strengthened. Due to the

inadequate infrastructural facilities such as space and telecommunication

facilities the commodities exchanges were not able to function effectively.

Enlisting more members, ensuring capital adequacy norms and encouraging

computerisation would enable these exchanges to place themselves on a

better footing.

In-built devices in commodity exchanges such as the vigilance committee and

the panels of surveyors and arbitrators be strengthened further.

The FMC which regulates forward/ futures trading in the country should

continue to act a watch.dog and continue to monitor the activities and

operations of the commodity exchanges. Amendments to the rules,

regulations and bye-laws of the commodity exchanges should require the

approval of the FMC only.

In the context of globalisation, commodity markets in India could not function

effectively in an isolated manner. Therefore, some of the commodity

exchanges, particularly the ones dealing in pepper and castor seed, be

upgraded to the level of international futures markets.

The majority of the committee recommended that futures trading be

introduced in the following commodities:

1. Basmati rice

2. Cotton and kapas

3. Raw jute and jute goods

4. Groundnut, rapeseed/mustard seed, cottonseed, sesame seed, sunflower

seed, safflower seed, copra and soybean, and oils and oilcakes of all of them.

5. Rice bran oil

6. Castor oil and its oilcake

7. Linseed

8. Silver

9. Onions

The liberalised policy being followed by the government of India and the

gradual withdrawal of the procurement and distribution channel necessitated setting

in place a market mechanism to perform the economic functions of price discovery

and risk management.

The national agriculture policy announced in July 2000 and the

announcements in the budget speech for 2002.2003 were indicative of the

governments resolve to put in place a mechanism of futures trade/market. As a

follow up, the government issued notifications on 1.4.2003 permitting futures trading

in the commodities, with the issue of these notifications futures trading is not

prohibited in any commodity. An option trading in commodity is, however presently

prohibited.

Table: 3 Registered commodity exchanges in IndiaExchange Product traded

Bhatinda Om & Oil Exchange Ltd. Gur

The Bombay Commodity Exchange Ltd. Sunflower oilCotton (Seed and oil)Safflower (Seed, oil and oil cake)Groundnut (Nut and oil)Castor oil, Castor seedSesamum (Oil and oilcake)Rice bran, rice bran oil and oilcakeCrude palm oil

The Rajkot Seeds oil & Bullion MerchantsAssociation

Groundnut oilCastor seed

The Kanpur Commodity Exchange Ltd. Rapeseed/ Mustardseed oil and cake

The Meerut Agro Commodities Exchange Co. Ltd.

Gur

The Spices and Oilseeds Exchange Ltd. Sangli

Turmeric

Ahmedabad Commodities Exchange Ltd. Cottonseed, CastorseedVijay Beopar Chamber Ltd., Muzaffarnagar GurIndia Pepper & Spice Trade Association, Kochi

Pepper Domestic-MG1

Rajdhani Oils and Oilseeds Exchange Ltd., Gur, Rapeseed/ Mustardseed

Delhi Sugar Grade-M

National Board of Trade, Indore Rapeseed/ Mustard seed/ Oil/ CakeSoybean/ Meal/ Oil, Crude Palm Oil

The Chamber of Commerce, Hapur Gur, Rapeseed/ MustardseedThe East India Cotton Association, Mumbai Indian CottonThe Central India Commercial Exchange Ltd., Gwaliar

Gur, Rapeseed/Mustardseed

The East India Jute & Hessian Exchange Ltd., Kolkata

Hessian, Sacking

First Commodity Exchange of India Ltd., Kochi

Copra, Coconut oil & Copra cake

The Coffee Futures Exchange India Ltd., Bangalore

Coffee

National Multi Commodity Exchange ofIndia Limited, Ahmedabad

Gur, RBD Pamolein, Groundnut Oil, Sunflower Oil, Rapeseed/Mustardseed, Rapeseed/Mustardseed Oil, Rapeseed/Mustardseed oil-Cake, Soy bean, Soy Oil, Copra, CottonSeed, Safflower, Groundnut, Sugar, Sacking, Coffee-Robusta Cherry AB, Coconut oil, Castorseed, Castor-oil, Groundnut oilCack, Cottonseed oil, Sesamum oil, Sesamum OilCake, Safflower OilCake, Rice Bran Oil, Safflower Oil, Sanflower OilCake, Sunflower Seed, Pepper, Crude Palm Oil, Guarseed, CastorOil Cake, Cottonseed – Oilcake, Aluminium Ingots, Nickel, Vanaspati, Soybean Oilcake, Rubber, Copper, Zinc, Lead, Tin, Linseed, Linseed Oil, Linseed Oilcake, Coconut Oilcake, Gold, Silver, Rice, Wheat, Cardamom, Kilo – Gold, Masoor, Urad, Tur / Arhar, Moong, GuarGum, Rapeseed – 42, Raw Jute, Coffee-Arabica Plantation A, Chana, Sugar (S-30), CUMINSEED, ISABGULSEED

National Commodity & Derivatives Exchange Limited

Soy Bean, Refined Soy OilMustard SeedExpeller Mustard Oil, RBD Palmolein, Crude Palm Oil,Medium Staple Cotton, Long Staple Cotton, Gold, Silver,

Rubber – Kottayam, Pepper – Kochi, Turmeric – Nizamabad, Urad – Mumbai, Mild Steel Ingots – Ghaziabad, Cashews W-320-Kollam, Cotton Seed Oilcake – Akola, Cotton Long Kadi, Arabica Coffee - Hassan (New), Chilli (Paala) LCA 334, Robusta Coffee - Kushalnagar (New)

Bikaner Commodity Exchange Ltd.,Bikaner Guarseed, GramEsugarindia Limited Sugar Grade – M, Sugar

Grade – S

Multi Commodity Exchange of India Ltd. RBD Pamolein, Groundnut Oil, Rapeseed/Mustardseed Oil, Pepper Domestic-MG1, Soy bean, Coconut oil, Castorseed, Castor-oil, Guarseed, Aluminium Ingots, Rubber, Copper, Zinc, Coconut Oilcake, Gram, Sugar Grade – M, Gold, Silver, Gold-M, Rice, Wheat, Ref Soya oil – Indore, Cardamom, Masoor, Urad, Tur / Arhar, GuarGum, Silver-M, Steel – Flat, Yellow Peas, Long Staple Cotton, Medium Stapple Cotton, Mustard Seed, Red Chilly, Maize, CASHEW KERNEL W320, Basmati Rice, Jeera, Crude Oil, Sarbati Rice, Sesame Seed ( Natural 99.1), Mentha Oil, sponge iron, HIGH DENSITY POL, KAPASKHALI, PPTQ, POTATO, Middle east crude oil, refined sunflower oil

The Meerut Agro Commodities Exchange Co.

Ltd., Meerut

Gur

Derivatives as a tool for managing risk first originated in the commodities markets.

They were then found useful as a hedging tool in financial markets as well. In India,

trading in commodity futures has been in existence from the nineteenth century with

organized trading in cotton through the establishment of Cotton Trade Association in

1875. Over a period of time, other commodities were permitted to be traded in

futures exchanges. Regulatory constraints in 1960s resulted in virtual dismantling of

the commodities future markets. It is only in the last decade that commodity future

exchanges have been actively encouraged. However, the markets have been thin

with poor liquidity and have not grown to any significant level. In this chapter we look

at how commodity derivatives differ from financial derivatives. We also have a brief

look at the global commodity markets and the commodity markets that exist in India.

1. Difference between commodity and financial derivatives

The basic concept of a derivative contract remains the same whether the underlying

happens to be a commodity or a financial asset. However there are some features

which are very peculiar to commodity derivative markets. In the case of financial

derivatives, most of these contracts are cash settled. Even in the case of physical

settlement, financial assets are not bulky and do not need special facility for storage.

Due to the bulky nature of the underlying assets, physical settlement in commodity

derivatives creates the need for warehousing. Similarly, the concept of varying

quality of asset does not really exist as far as financial underlings are concerned.

However in the case of commodities, the quality of the asset underlying a contract

can vary largely. This becomes an important issue to be managed. We have a brief

look at these issues.

2. Physical settlement

Physical settlement involves the physical delivery of the underlying commodity,

typically at an accredited warehouse. The seller intending to make delivery would

have to take the commodities to the designated warehouse and the buyer intending

to take delivery would have to go to the designated warehouse and pick up the

commodity. This may sound simple, but the physical settlement of commodities is a

complex process. The issues faced in physical settlement are enormous. There are

limits on storage facilities in different states. There are restrictions on interstate

movement of commodities. Besides state level octroi and duties have an impact on

the cost of movement of goods across locations. The process of taking physical

delivery in commodities is quite different from the process of taking physical delivery

in financial assets. We take a general overview at the process flow of physical

settlement of commodities. Later on we will look into details of how physical

settlement happens on the NMCE.

Delivery notice period

Unlike in the case of equity futures, typically a seller of commodity futures has the

option to give notice of delivery. This option is given during a period identified as

`delivery notice period'. Such contracts are then assigned to a buyer, in a manner

similar to the assignments to a seller in an options market. However what is

interesting and different from a typical options exercise is that in the commodities

market, both positions can still be closed out before expiry of the contract. The

intention of this notice is to allow verification of delivery and to give adequate notice

to the buyer of a possible requirement to take delivery. These are required by virtue

of the fact that the actual physical settlement of commodities requires preparation

from both delivering and receiving members.

Typically, in all commodity exchanges, delivery notice is required to be supported by

a warehouse receipt. The warehouse receipt is the proof for the quantity and quality

of commodities being delivered. Some exchanges have certified laboratories for

verifying the quality of goods. In these exchanges the seller has to produce a

verification report from these laboratories along with delivery notice. Some

exchanges like LIFFE, accept warehouse receipts as quality verification documents

while others like BMF-Brazil have independent grading and classification agency to

verify the quality.

In the case of BMF-Brazil a seller typically has to submit the following documents:

A declaration verifying that the asset is free of any and all charges, including

financial debts related to the stored goods.

A provisional delivery order of the good to BM&F (Brazil), issued by the

warehouse.

A warehouse certificate showing that storage and regular insurance have

been paid.

Assignment

Whenever delivery notices are given by the seller, the clearing house of the

exchange identifies the buyer to whom this notice may be assigned. Exchanges

follow different practices for the assignment process. One approach is to display the

delivery notice and allow buyers wishing to take delivery to bid for taking delivery.

Among the international exchanges, BMF, CBOT and CME display delivery notices.

Alternatively, the clearing houses may assign deliveries to

buyers on some basis. Exchanges such as COMMEX and the Indian commodities

exchanges have adopted this method.

Any seller/ buyer who has given intention to deliver/ been assigned a delivery has an

option to square off positions till the market close of the day of delivery notice. After

the close of trading, exchanges assign the delivery intentions to open long positions.

Assignment is done typically either on random basis or first-in-first out basis. In some

exchanges (CME), the buyer has the option to give his preference for delivery

location.

The clearing house decides on the daily delivery order rate at which delivery will be

settled. Delivery rate depends on the spot rate of the underlying adjusted for

discount/ premium for quality and freight costs. The discount/ premium for quality

and freight costs are published by the clearing house before introduction of the

contract. The most active spot market is normally taken as the benchmark for

deciding spot prices. Alternatively, the delivery rate is determined

based on the previous day closing rate for the contract or the closing rate for the

day.

Delivery

After the assignment process, clearing house/ exchange issues a delivery order to

the buyer. The exchange also informs the respective warehouse about the identity of

the buyer. The buyer is required to deposit a certain percentage of the contract

amount with the clearing house as margin against the warehouse receipt.

The period available for the buyer to take physical delivery is stipulated by the

exchange. Buyer or his authorized representative in the presence of seller or his

representative takes the physical stocks against the delivery order. Proof of physical

delivery having been effected is forwarded by the seller to the clearing house and the

invoice amount is credited to the seller's account.

In India if a seller does not give notice of delivery then at the expiry of the contract

the positions are cash settled by price difference exactly as in cash settled equity

futures contracts.

3. Warehousing

One of the main differences between financial and a commodity derivative is the

need for warehousing. In case of most exchange-traded financial derivatives, all the

positions are cash settled. Cash settlement involves paying up the difference in

prices between the time the contract was entered into and the time the contract was

closed. For instance, if a trader buys futures on a stock at Rs.100 and on the day of

expiration, the futures on that stock close Rs.120, he does not really have to buy the

underlying stock. All he does is take the difference of Rs.20 in cash. Similarly the

person, who sold this futures contract at Rs.100, does not have to deliver the

underlying stock. All he has to do is pay up the loss of Rs.20 in cash.

In case of commodity derivatives however, there is a possibility of physical

settlement. This means that if the seller chooses to hand over the commodity instead

of the difference in cash, the buyer must take physical delivery of the underlying

asset. This requires the exchange to make an arrangement with warehouses to

handle the settlements. The efficacy of the commodities settlements depends on the

warehousing system available. Most international commodity exchanges used

certified warehouses (CWH) for the purpose of handling physical settlements. Such

CWH are required to provide storage facilities for participants in the commodities

markets and to certify the quantity and quality of the underlying commodity. The

advantage of this system is that a warehouse receipt becomes a good collateral, not

just for settlement of exchange trades but also for other purposes too. In India, the

warehousing system is not as efficient as it is in some of the other developed

markets. Central and state government controlled warehouses are the major

providers of agri-produce storage facilities. Apart from these, there are a few private

warehousing being maintained. However there is no clear regulatory oversight of

warehousing services.

4. Quality of underlying assets

A derivatives contract is written on a given underlying. Variance in quality is not an

issue in case of financial derivatives as the physical attribute is missing. When the

underlying asset is a commodity, the quality of the underlying asset is of prime

importance. There may be quite some variation in the quality of what is available in

the marketplace. When the asset is specified, it is therefore important that the

exchange stipulate the grade or grades of the commodity that are acceptable.

Commodity derivatives demand good standards and quality assurance/ certification

procedures. A good grading system allows commodities to be traded by specification.

Currently there are various agencies that are responsible for specifying grades for

commodities. For example, the Bureau of Indian Standards (BIS) under Ministry of

Consumer Affairs specifies standards for processed agricultural commodities whereas

AGMARK under the department of rural development under Ministry of Agriculture is

responsible for promulgating standards for basic agricultural commodities. Apart

from these, there are other agencies like EIA, which specify standards for export

oriented commodities.

NATIONAL COMMODITY & DERIVATIVES EXCHANGE (NCDEX)

NCDEX is committed to provide a world-class commodity exchange platform for

market participants to trade in a wide spectrum of commodity derivatives driven by

best global practices, technology, professionalism and transparency.

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally

managed on-line multi commodity exchange promoted by ICICI Bank Limited (ICICI

Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and

Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).

Canara Bank (PNB), CRISIL Limited (formerly the Credit Rating Information Services of

India Limited), Goldman Sachs, Indian Farmers Fertiliser Cooperative Limited (IFFCO)

and Punjab National Bank by subscribing to the equity shares have joined the initial

promoters as shareholders of the Exchange. NCDEX is the only commodity exchange

in the country promoted by national level institutions. This unique parentage enables

it to offer a bouquet of benefits, which are currently in short supply in the commodity

markets. The institutional promoters and shareholders of NCDEX are prominent

players in their respective fields and bring with them institutional building

experience, trust, nationwide reach, technology and risk management skills.

NCDEX is a public limited company incorporated on April 23, 2003 under the

Companies Act, 1956. It obtained its Certificate for Commencement of Business on

May 9, 2003. It commenced its operations on December 15, 2003.

NCDEX is a nation-level, technology driven de-mutualised on-line commodity

exchange with an independent Board of Directors and professional management –

both not having any vested interest in commodity markets. It is committed to provide

a world-class commodity exchange platform for market participants to trade in a

wide spectrum of commodity derivatives driven by best global practices,

professionalism and transparency.

NCDEX is regulated by Forward Markets Commission. NCDEX is

subjected to various laws of the land like the Forward Contracts

(Regulation) Act, Companies Act, Stamp Act, Contract Act and various

other legislations.

NCDEX is located in Mumbai and offers facilities to its members about 

550 centres throughout India. The reach will gradually be expanded to

more centres.

NCDEX currently facilitates trading of 57 commodities.

MULTI COMMODITY EXCHANGE OF INDIA (MCX)

Everything you need to know about our company, it’s people and

associates"

MCX is an independent and de-mutulised multi commodity exchange. It was

inaugurated on November 10, 2003 by Mr. Mukesh Ambani, Chairman and Managing

Director, Reliance Industries Ltd.; and has permanent recognition from the

Government of India for facilitating online trading, clearing and settlement operations

for commodities futures market across the country. Today, MCX features amongst

the world's top three bullion exchanges and top four energy exchanges.

MCX offers a wide spectrum of opportunities to a large cross section of participants

including producers/ processors, traders, corporate, regional trading centre,

importers, exporters, co-operatives and industry associations amongst others.

Headquartered in the financial capital of India, Mumbai, MCX is led by an expert

management team with deep domain knowledge of the commodities futures market.

Presently, the average daily turnover of MCX is around USD1.55 bn (Rs.7,000 crore -

April 2006), with a record peak turnover of USD3.98 bn (Rs.17,987 crore) on April 20,

2006. In the first calendar quarter of 2006, MCX holds more than 55% market share

of the total trading volume of all the domestic commodity exchanges. The exchange

has also affected large deliveries in domestic commodities, signifying the efficiency

of price discovery. Being a nation-wide commodity exchange having state-of-the-art

infrastructure, offering multiple commodities for trading with wide reach and

penetration, MCX is well placed to tap the vast potential poised by the commodities

market.

Financial Technologies (I) Ltd., State Bank of India and it's associates, National Bank

for Agriculture and Rural Development (NABARD), National Stock Exchange of India

Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity International, Corporation

Bank, Union Bank of India, Canara Bank, Bank of India, Bank of Baroda , HDFC Bank

and SBI Life Insurance Co. Ltd.

National Multi Commodity Exchange of India Ltd, Ahmedabad

(NMCE)

National Board Of Trade, Indore

In this chapter we shall take a brief look at the trading system for futures on NMCE.

However, the best way to get a feel of the trading system is to actually watch the

screen and observe how it operates.

1. TYPES OF MARKETS

Trading Markets

I. Ready Delivery Market

II. Specific Delivery Market

III. Future Market

IV. Auction Market

I. Ready Delivery Market

Cash Trades

Cash Trades are done for one hour in the day and are settled the same day. The

Seller has to deliver the warehouse receipt and Buyer has to make payment before

the closure of the banking hours. On receipt of payment from the Buyer, Clearing

House will release and endorse the warehouse receipt in favor of the Buyer. All the

trades are settled individually on trade for trade basis.

Spot Trades

Spot Trades done for two hours in the day are settled on the third day from the date

of transaction. The settlement is done on T+2 day i.e. trade done on Monday will be

settled on Wednesday. The Seller has to deliver the warehouse receipt and Buyer has

to make payment before the closure of the banking hours on the third working day.

On receipt of payment from the Buyer, Clearing House will release and endorse the

warehouse receipt in favour of the Buyer. All the trades are settled individually on

trade-for-trade basis.

Weekly Trades

Trades for weekly settlements are done during the prescribed hours in the day are

settled on the fifth day from the date of transaction. The settlement is done on T+5

rolling day i.e. trade done on Monday will be settled on next Monday. The Seller has

to deliver the warehouse receipt and Buyer has to make payment before the closure

of the banking hours on the fifth working day. On receipt of payment from the Buyer,

Clearing House will release endorse the warehouse receipt in favour of the Buyer. All

the trades are settled individually on trade-for-trade basis. The transactions are not

netted for the purpose of settlement.

II. Specific Delivery Market

Features of Specific Delivery Contracts are:

These contracts will have delivery obligation maturing beyond a period of 11 days

The terms of delivery of commodities may vary from trade to trade as decided by the

contracting parties at the time of entering into transaction. Such specific terms could

be related to delivery date, delivery center, quality of commodity, pricing basis (FOB,

CIF), payment terms etc.

The transactions are not done on anonymous basis i.e. transactions are done

knowing the counter party.

Both the parties to trade enter into transactions after knowing the terms of contract,

which may vary from trade to trade. However, there are standard definitions for

various terms of contracts.

Exchange will monitor performance of these contracts and if required, impose mark

to market margins on the open, unsettled contracts depending upon the volatility in

the commodity.

All the members entitled to trade in a commodity will be allowed to trade in these

Specific Delivery markets.

III. Futures Market

The Futures Market is primarily intended for Hedging and Speculation. Contracts in

Futures Market results mostly in Cash Settlement and do not frequently result in

delivery. The Clearing House guarantees trades executed on the exchange. Contracts

that are not closed out and are due for delivery will be delivered and settled through

the warehouse receipts. NMCEIL is having 12 delivery month contracts as separate

contracts for each commodity being traded at NMCEIL. All contracts are settled on

daily basis at the daily settlement price till the final delivery of commodity on the

expiry date.

Futures market consists of various book types wherein orders are segregated as

Regular lot orders, Special Term orders, Negotiated Trade Entries and Stop Loss

orders depending on their order attributes. All orders have to be of regular lot size or

multiples thereof.

IV. Auction Market

Auction Market is used by the Exchange to close out the positions of the members

who have failed to pay-in their obligations. In the Auction market, the trading

member can participate in the auctions initiated by the Exchange only. The counter

orders can be entered only during Auction period.

2. FUTURES TRADING SYSTEM

Benefits of futures market, viz., price discovery and price risk management flow more

easily from an Order-driven system rather than Quote-driven system. NMCE follows

the former system. NMCE does not support any market maker. Traders submit orders

and the incoming orders are matched against the existing orders in the order book.

Transactions are cleared and settled through NMCE’s in-house Clearing and

Settlement House, which is connected to all its Members and the Clearing Banks.

Delivery of the underlying commodities is permitted only through a Central

Warehousing Corporation (CWC) receipt, which meets highest contemporary

international standards. Anonymity of trading participants and effective risk

management system strengthens the trust of the participants in the trading system,

which is a precondition for enhancing breadth and depth of the market. 

3. ENTITIES IN THE TRADING SYSTEM

Trading rights on the Exchange can be acquired by Individuals, Registered Firms,

Corporate bodies and Companies (as defined in the Companies Act 1956) by

complying with the admission norms. Membership of the Exchange follows a

hierarchy, and each level is characterized by a definitive role and incumbent

privileges and obligations.

I. Trading Cum Clearing Member (TCM):

is one who has the right to execute transactions in addition to a right to clear its

transactions in contracts executed at NMCE either on his own behalf or on behalf of

other Trading Members.

II. Trading Member/Broker (TM):

is one who has the right to execute transactions in the trading system of the

exchange and the right to have contracts in his own name. The TM can also deal on

behalf of clients (Registered Non Members) or enlist Sub Brokers who may in turn

have their own set of clients. TM must settle all his transactions (and those of Sub

Brokers and Registered Non Member) through Clearing Members (Trading cum

Clearing Members or Institutional Clearing Members).

III. Institutional Clearing Members (ICMs):

are professional entities providing clearing services to their institutional clients (viz.

Trading Members and their Sub Brokers & Registered Non Members). They however

do not have the right to trade on their own account.

IV. Introducing Broker/Sub Broker:

is a Registered member of the NMCEIL who has the right to execute transaction in

the trading system of the exchange only through a TM/TCM. Sub-Brokers will settle

the transactions of clients introduced by them, through Brokers, who in turn settle

through Clearing Members (TCMs or ICMs).

V. Registered Non Member :

Is a person who is registered with the Exchange for the purpose of dealing in

commodities through a TM. A Registered Non-member has to fulfill such

requirements as may be prescribed by the Exchange from time to time. Every

Registered Non-member will be provided a unique Client Identification (Client Id).

Eligibility Criteria for Membership

Net Worth:  

Minimum prescribed net worth for an applicant is Rs. 50 lakh.

Net worth certificate should be computed for this purpose by following a definition of

net worth adopted by practising Chartered Accountants for finalisation of accounts. 

Existing fund based asset , if any should be excluded for calculation of net worth.

In case, the company is a member of any Commodity  Exchange(s), it should satisfy

the combined minimum Net Worth requirements of all these Exchanges including

NMCEIL.

Paid-up Capital:

Minimum prescribed paid up capital for a corporate is Rs. 30 lakh.

In case of  a partnership firm combined capital of all the partners should be at-least

Rs.30 lakh.

Fees & Deposits

Revised Membership Fees & Deposit structure (Effective from 21st January 2004)

No.Details

Amount (Rupees in Lacs)

1 Admission Fees (Non refundable)1.00

2 Contribution towards the Trade Guarantee Fund of the Exchange (Refundable only after the minimum lock in period) *

1.00

3 Initial Base Capital (Refundable only after the minimum lock in period) *

1.00

4 Additional Base Capital (Refundable only after the minimum lock in period) *

10.00

5 Annual Subscription charges 0.20

Total Amount 13.20

* Minimum "Lock in" Period of 3 years.

FUTURE TRADING HIERARCHY

Ministry of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Food and Public

Distribution(Government of India)Distribution(Government of India)

Forward markets Forward markets Commission(FMC)Commission(FMC)

National Multi-Commodity National Multi-Commodity Exchange (NMCE)Exchange (NMCE)

Trading Cum Clearing Trading Cum Clearing Members (TCM) Members (TCM)

Institutional Clearing Institutional Clearing Members (ICMs)Members (ICMs)

Client / Non Client / Non Registered MemberRegistered Member

Trading Members (TM)Trading Members (TM)

TraderTrader

4. CLEARING & SETTLEMENT MECHANISM

Clearing Bank

Clearing Bank is such bank as the Clearing House of the Exchange may appoint to act

as a funds settling agency, for the collection of margin money for all deals cleared

through the Clearing House of the Exchange and any other funds movement between

clearing members and the Clearing House of the Exchange and between clearing

members as may be directed by the Clearing House of the Exchange from time to

time.

A Clearing House

The Exchange shall maintain a Clearing House which shall act as the common agent

of the Exchange Members for clearing contracts between Exchange Members and for

delivering Warehouse Receipts to and receiving Warehouse Receipts from Exchange

Members in connection with any of the contracts and to do all things necessary or

proper for carrying out the foregoing purposes. The functions of the Clearing House

may be performed by the Exchange or any other agency identified by the Exchange

for this purpose.

For efficient clearing & settlement of trades, NMCE has an automated clearing and

settlement system with HDFC Bank as its Clearing Bank. The software automatically

calculates Initial Margins using VAR (Value At Risk) and MTM (Mark to Market)

margins on a daily basis. In the same way, members’ positions are also computed on

a daily basis. The information regarding pay-ins and pay-outs arising in calculations

of positions of members is transferred at the end of trading hours electronically,

using flat files for the clearing banks and members.

5. MARGINS FOR TRADING IN FUTURES

Margin is the deposit money that needs to be paid to buy or sell each contract. The

margin required for a futures contract is better described as performance bond or

good faith money. The margin levels are set by the exchanges based on volatility

(market conditions) and can be changed at any time. The margin requirements for

most futures contracts range from 2% to 15% of the value of the contract.

The objective of NMCE is to organize trading in such a way that possibility of defaults

is almost eliminated. To achieve this, NMCE has adopted various margins as follows:-

I. Exposure Limits:

Exchange provides facility in the system enabling the TCMs to select the

commodities in which the TM can trade and also fix the trading limits for each TM.

TCM can also monitor the position of TMs online.

 

II. Initial Margin:

The initial margin (IM) is levied on all open positions (Buy or sell positions) of the

members and their clients. The IM percentage on each commodity varies depending

upon its market volatility. The margin so calculated is reduced from the total margin

of the member available with the exchange and accordingly further exposure is given

on the balance amount.  As the IM increases, the exposure shall decrease.

 

III. Mark to Market (MTM) Margins:

MTM is a mechanism devised by the exchanges to prevent the possibility of the

potential loss accumulating to the level where the participants might willingly or

unwillingly commit default. All trades done on the exchange during the day and all

open positions for the day are marked to closing price for the respective

delivery/contract and notional gain or loss is worked out. Such loss/gain is

debited/credited to respective member’s account at the end of each day. The

outstanding position of the members is then carried forward the next day at the

closing price.

 

IV. Special Margins :

have primarily been introduced not as a risk management tool, but to act as a speed-

breaker for sharply rising or falling price. It is applied when price reaches a particular

level above/below the previous day’s closing price.

 

V. Delivery Margins :

are applicable to the contracting parties (both, buyer and seller) from the 12th day of

the contract maturity month.

VI. Price Bands: Daily Cap & Life Time Cap:

have been imposed on all commodities to prevent extreme volatility and unhealthy

practices of cornering the market.

 

VII. Final Settlement:

On the expiry of the futures contracts, the settlement is by the way of delivery.  The

delivery is at seller’s option between 12th to 15th of the delivery month.  The pay-

in/pay-out for delivery is by way of debit to the buyer and credit to the seller to the

relevant Clearing Member’s clearing bank account on T+3 day (T=date of allocation

of delivery).

On 15th if seller fails to tender delivery or fails to square-off his position then the

highest price of the contract during its currency is taken for cash settlement in

marking all undelivered outstanding position to final settlement price.  Resulting

profit/loss settled in cash.  Final settlement loss/profit amount is debited/credited to

the relevant Clearing Member’s clearing bank account on T+1 day. (T=expiry day).

 

VIII. On-Line Surveillance :

includes the monitoring of prices, volume & volatility in various series and its analysis

using various methods like real time graphs, queries, alerts etc.

 

IX. Off-Line surveillance :

includes margining requirements, procedures in respect of exception handling,

position monitoring, exposure limits, investigation techniques & disciplinary action

procedures.

6. DELIVERY MECHANISM

One of the methods of settling the contracts is by taking or making delivery. Delivery

period at NMCE is 12th to 15th of the delivery month. During this period Members of

the exchange are not permitted to create any fresh position in the expiring contracts.

They can either square up their position or take/give delivery to settle their

outstanding contracts. Various steps required to be followed by the participants

having outstanding position on 12th of delivery month are as follows:

Steps to follow:

1) Sellers and buyers have to convey intention on or before 12 th of the delivery

month.

2) The intentions are then matched and assigned by the Exchange with the

corresponding buyers. As is the case universally, seller has freedom to tender

delivery during the delivery period at any approved delivery centers. In other words,

buyer cannot demand delivery at delivery center of his choice. When the seller gives

intimation, a call is made to the corresponding buyer to whom the delivery is

assigned by the Exchange. Delivery margin is collected from both the buyer and

seller.

3) After matching the open positions of relevant buyer and seller, the same is

transferred from the system and settled at the closing price of the preceding day, so

that mark to market (MTM) is not levied or paid to the member.

4) Within three days from the position transfer, the buyer has to maintain the

required funds in their clearing & settlement account while the seller has to tender

the warehouse receipts to the exchange along with the computation of warehouse

charges. On the 3rd day, the exchange makes pay-in & payout simultaneously after

retaining the warehouse charges margin and sales tax margin from the buyer and

seller respectively.

5) After the completion of pay-in and payout, duly endorsed warehouse receipts are

sent to the buyer immediately.

6) Settlement of warehouse charges, margins and sales tax margins take place soon

after receipt of relevant documents (copies of sales bill, sales tax form) from the

member.

 

DELIVERY MECHANISM OF NMCE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange looks over the commodities to be delivered from the open positions of members

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make them available to the exchange

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After Completion of Pay-in & Pay-Out process Warehouse Receipts received from the seller are sent to the buyerOn

Delivery day

7. WAREHOUSE RECEIPT

Sample CWC Warehouse Receipt

The term “Warehousing Receipt” has been defined in The State Warehouses Act.

“Receipt” means a Warehouse Receipt in the prescribed form issued by a Warehouse

Man to a person depositing goods in the warehouse. A licensed warehouseman is

authorized to issue a negotiable or a non negotiable warehouse receipt. It evidences

a contract for storage of goods. It is accepted by the commercial banks as collateral

security for grant of loan against the goods stored in the warehouses. A warehouse

receipt can be negotiated by endorsement and delivery. It is a document of title of

goods as per the Sale of Goods Act, 1930. The goods covered by a negotiable

warehouses receipt can be transferred by an endorsement on the Warehouse Receipt

and its delivery to the endorsee. A person to whom warehouse receipt is negotiated

acquires a title to the goods in respect of which such warehouse receipt has been

issued. The endorsee gets a right to have the possession of goods covered by such

warehouse receipt as per the terms and conditions contained in such receipt. The

endorsee also gets a right to have such goods delivered to him or his authorized

agent by the warehouseman.

State Warehouse Act

1) Every warehouseman shall, at the time when goods are received by him for

deposit in a warehouse, issue a receipt in the prescribed form, contained full

particulars in respect of the goods stored in his warehouse by each depositor. 

2) A receipt issued by a warehouseman shall, unless otherwise specified on the

receipt, be transferable by endorsement, and shall entitle its lawful holder to receive

the goods specified in it on the same terms and conditions on which the person who

originally deposited the goods would have been entitled to receive them.

No country in the world produces as many kinds of spices as India. At present, India

produces around 2.5 million tonnes of different spices valued at approximately 3

billion US $, and holds the premier position in the world. Because of the varying

climates - from tropical to sub-tropical totemperate-almost all spices are grown in

this country. In almost all of the 25 states and seven union territories of India, at

least one spice is grown in abundance.

1. SPICES BOARD

The Spices Board was constituted as a statutory Body on 26th February, 1987 under

the Spices Board Act, 1986. The Board was set up with the objective of development

of cardamom industry and export promotion of all the 52 spices listed in the Spices

Board Act, 1986. Some of the major spices among them are pepper, chilli, ginger,

turmeric, cardamom, coriander, cumin, fennel, fenugreek, celery, vanilla and saffron.

The Board has its head office at Kochi and is headed by a Chairman. The primary

functions of the Board are - increasing the production and productivity of small and

large cardamom; development, promotion and regulation of export of spices;

assisting and encouraging studies and research for improvement of processing;

grading and packaging of spices; striving towards stabilization of prices of spices for

export; upgrading quality for export. In regard to cardamom, the Board provides

financial and other assistance for cultivation and processing of cardamom;

monitoring prices; increasing domestic consumption; improving marketing;

undertaking, assisting or encouraging scientific, technological and economic

research; improving quality. Spices Board also implements programmes for

development of exotic and high value spices like vanilla, herbal spices and organic

spices etc.

 

Various programmes were implemented by the Spices Board for the development of

cardamom which includes production and supply of planting material, cardamom

replanting scheme, irrigation and land development, extension advisory scheme,

post harvest improvement of spices, development of exotic and high value spices

and organic farming. The Board is also implementing programmes for supporting

production and processing of vanilla. Tribal growers of cardamom were assisted by

implementing various developmental programmes with enhanced financial

assistance. Besides, Indian Cardamom Research Institute under the Spices Board

carries out need based research programmes for the crop improvement work in

cardamom as also post harvest techniques.

Chillies, pepper, ginger, turmeric, seed spices, coriander, cumin, fenugreek, curry

powders and spice oils and oleoresins are the main spices/spice products exported

from India. The Board is implementing a number of schemes aimed at export

development of spices with a view to meet international standards and promotion of

export of value added spices. The Board has well established quality evaluation and

upgradation laboratory at Cochin which is engaged in surveying the quality of spices

procured form different producing and marketing centres. It offers training of quality

upgradation to growers and exporters and undertakes physical, chemical and

biological analysis of the samples brought by the exporters.

In order to increase exports of spices from India, the Spices Board implements

various strategies that are focussed on high end value addition, adoption of modern

processing technologies, development of new spice products and new end uses for

spices, creation of niche markets for Indian organic spices, promotion of spice

production and processing in the North East, expansion of spices export basket,

promotion of integrated pest management, harmonization of standards, etc. The

Board is also promoting worldwide direct sale of premium category of branded

spices,viz.,”Flavourite”,since march 2005. The Spices Board further extends financial

assistance for adoption of high tech and technology upgradation; trade promotion;

participation in international meetings/ seminars/ trade fairs/ publicity etc.

2. STATEWISE PRODUCT

State Product

ANDHRA PRADESHChilly ,Ginger , Mustard Turmeric

ARUNACHAL PRADESH

Ginger ,Tejpat Turmeric

ASSAMAniseed , Turmeric

HARYANAGarlic

BIHARAjovan,Garlic, Mustard,Turmeric

GUJARATChilly,Cumin,Dill Seed,Fennel,Fenugreek,Garlic

HIMACHAL PRADESH

Ginger

JAMMU & KASHMIRAjovan,Saffron

KARNATAKACardamom (Small),Chilly,Clove,Garlic,Ginger ,Kokam,Nutmeg & Mace,Pepper,Turmeric,Vanilla

KERALACardamom (Small),Cinnamon & Cassia,Clove,Ginger ,Nutmeg & Mace,Pepper,Turmeric,Vanilla

MADHYA PRADESHChilly,Garlic,Ginger

MAHARASHTRAChilly,Garlic,Pomegranate Seed,Turmeric

MEGHALAYAGinger ,Turmeric

MIZORAMGinger

ORISSAChilly,Garlic,Ginger ,Turmeric

PUNJABAniseed,Celery

RAJASTHANChilly,Cumin,Coriander,Dill Seed,Fennel,Fenugreek,Garlic

SIKKIMCardamom (Large),Ginger ,Tejpat

TAMIL NADU

Cardamom (Small),Chilly,Cinnamon & Cassia,Clove,Ginger ,Herbal & Exotic Spices,Nutmeg & Mace,Pepper,Pomegranate Seed,Turmeric,Vanilla

TRIPURATurmeric

UTTAR PRADESHAniseed,Celery,Chilly,Coriander,Cumin,Fennel,Fenugreek,Garlic, Mustard,Turmeric

WEST BENGALCardamon (Large),Chilly,Ginger ,Turmeric

The world trade in spices during 2004-05 is estimated at 7.50 lakh tonnes of which

India’s share was 45 percent. In 2003-04, the total production of spices in the country

is estimated around 37.40 lakh tonnes. While almost all States produce spices, the

important states accounting for sizeable area and production are Kerala, Karnataka,

Tamil Nadu, Andhra Pradesh, Rajasthan and Maharashtra.

3. INDIA'S SPICES EXPORT

Spices exports have registered substantial growth during the last one decade. It has

increased from 155008 tonnes valued MLN US $ 198 million in 1994-95 to 335488

tonnes valued MLN US $ 491 million in 2005-06, registering an all time record in

terms of quantity. During the year 2005-06, the spices export value has surpassed

MLN US $ 500 million and the export has been 320527 tonnes valued MLN US $ 518

million. India commands a formidable position in the World Spice Trade with 45%

share in Volume and 30% in Value.

Trend In India's Spice Exports

Board has formulated and implemented a three tier quality certification programme

conforming to HACCP. Award of Spice House Certificate for good manufacturing

practices, award of Logo for quality of the product and accreditation under ISO 9000

for international acceptance are the three certification systems adopted by the

Board. Yet another area of activity centered upon by the Board is Value Addition.

India can now boast as the monopoly supplier of spice oils and oleoresins the world

over. In the case of curry powders, spice powders, spice mixtures and spices in

consumer packs, India is in a formidable position. The consistent effort of the Board

during the last one decade has improved the share of the value added products in

the export basket to more than 60%.

With the support of the Spices Board, exporters have established adequate

infrastructure for improving quality on a sustained basis. Quality improvement and

technological upgradation are taken up by exporters as an on-going programme.

These developments are in tune with the changing levels of market acceptance.

Other areas focused upon by the Board are export promotion in identified markets,

interaction with policy makers in the importing countries, development of new end

uses, farm level training for farmers etc.

India's share in world trade of spices(2004 - 2005)

(QUANTITY) (VALUE)

4. HOW MANY COMMODITIES THAT ARE TRADED IN INDIAN

COMMODITY EXCHANGES?

There are four main spices that mostly trading in Indian commodity exchanges.

I. Pepper

II. Cuminseed (Jeera)

III. Red Chilly

IV. Turmeric

I. pepper

Botanical name Piper nigrum L.

Family name Piperaceae

Commercial part Fruit

Indigenous to India, pepper, rightly called the King of Spices, is one of the oldest and

best-known spices in the world. India has always reigned supreme in the production

and export of this most exotic and sought-after spice.

Indian pepper had a profound influence on the European economy of the Middle

Ages. Many western countries owed their prosperity to this spice which fetched them

a very high price. Easily the finest in quality anywhere, Indian pepper is grown in the

monsoon forests along the Malabar coast in South India. Here, a combination of

natural adavantages and organic techniques produces bigger, better-shaped, more

aromatic and flavourful berries.

Two of the most celebrated trade varieties of Indian black pepper are 'Malabar

Garbled' and 'Tellichery Extra Bold'. India also offers green pepper in several

processed forms - frozen, dehydrated, freeze-dried and packed in brine. Pepper is a

perennial climber requiring the support of live or dead standrads.

II. Cuminseed (Jeera)

Botanical name Cuminum cyminum L.

Family name Apiaceae

Commercial part Fruit

The dried fruit of a small herbaceous plant, cumin was quite popular even during the

Biblical times as an efficient digestive and as a food flavour for ceremonial feasting.

Though native to Egypt and the Mediterranean, cumin is now mostly produced in

India.

Cumin has an intensely strong flavour, much similar to caraway. Indian cumin finds

worldwide use in foods, beverages, liquors, medicines, toiletries and perfumery.

Indian cumin grows abundantly in the mild, equable climate of Gujarat, Rajasthan

and Uttar Pradesh where rich, well-drained, sandy, loamy soil and the sunny,

conducive environment are available.

Indian cumin is exported in its natural as well as powdered form, besides as essential

oil. Exports are mostly to USA, Singapore, Japan, UK and North Africa.

III. Red Chilly

Botanical name Capsicum annum L., Capsicum frutescens L.

Family name Solanaceae

Commercial part Green as well as ripe and dried pod (fruit)

Chilly is the universal spice of India. It is cultivated in all the States and Union

Territories of the country. The important States growing chilli are Andhra Pradesh,

Orissa, Maharashtra, West Bengal, Karnataka, Rajasthan and Tamil Nadu. Andhra

Pradesh alone commands 46% of the chilli production in India. As per the latest

statistics, India produced 8,00,100 tonnes of dry chilli from an area of 9,30,000

hectare.

Chilli has two important commercial qualities. If some varieties are famous for red

colour because of the pigment capsanthin, others are known for biting pungency

attributed by capsaicin. India is the only country rich in many varieties with different

quality factors.

While consumption of chilli is the highest in India, maximum export is also from this

country. India made the record export of 51,900 tonnes of dry chilli in 1996-97.

Oleoresin of chilli with low, medium or high pungency is also exported in large

quantities. Chilli powder is another important item of export. Indian chilli and its

products are brought by a number of countries. Important among them are Sri Lanka,

Bangladesh, South Korea and USA for dry chilli and USA, Germany, Japan, UK and

France for oleoresin. India can supply chilli in whole, crushed, powder or oleoresin

forms in consistent colour and required pungency.

IV. Turmeric

Botanical name Curcuma longa L.

Family name Zingiberaceae

Commercial part Rhizome or underground stem

The dried rhizome of a herbaceous plant, turmeric is closely related to ginger.  The

spice is also sometimes called 'Indian saffron' thanks to its brilliant yellow colour.

Indian turmeric has been known to the world since ancient times. Several unique

properties of Indian turmeric make it the ideal choice as a food flavour, an effective

ingredient in medicines and cosmetics, and as a natural colourant.

With its rich curcumin content, which imparts the distinctive yellow colour, and other

inherent qualities, Indian turmeric is considered the best in the world. India is today

the largest exporter of turmeric to discerning countries like the Middle East, the UK,

USA and Japan.

Some of the well-accepted varieties are: 'Alleppey Finger' and 'Erode turmeric' (from

Tamil Nadu), 'Rajapore' and 'Sangli turmeric' (from Maharashtra) and 'Nizamabad

Bulb' (from Andhra Pradesh). India also exports turmeric in powder form and as

oleoresin.

INTRODUCTION

Pepper the “king of spices” originated in the monsoon forests of Malabar Coast in

southwest India. It is one of most popular and oldest spice in the world, its earliest

usage about 4000 years ago. It is a perennial, climbing vine indigenous to the

Malabar Coast of India. This pungent spice made from its berries is one of the earliest

spices known and is probably the most widely used spice in the world today. It was

mentioned as far back as 1000 BC in ancient Sanskrit literature. In early historic

times black pepper was widely cultivated in the tropics of Southeast Asia, where it

became an important article of overland trade between India and Europe. It is

marketed in four different varieties - white, green, red and black peppercorns. It

became a medium of exchange, and tributes were levied in black pepper in ancient

Greece and Rome. The name pepper comes from the Sanskrit word pippali meaning

berry. The most popular varieties from India, Malabar Garbled and Tellicherry Black

pepper, still dominates in production and consumption.

SEASONALITY

In India harvesting of pepper starts from December end and extends till March

beginning. However, harvesting period differs from other major competitors in the

world. During may to September most of the countries completes harvesting.

SUPPLY AND DEMAND DYNAMICS

Supply Analysis

India has the largest area under cultivation for pepper contributing 46% to the world

area. Indonesia contributes about 19 percent followed by Vietnam (11%), Srilanka

(6%), Brazil (5%) and other countries. World Area under pepper remains stagnant

after 2002 due to continuous dry spell and also increased area in 2001 leads to lower

expansion of area under Pepper.

During the last 5 years Vietnam has dramatically increased the area under

production of pepper causing a major change in the supply dynamics of pepper. The

area under production has been increasing marginally during the last 3 years.

Excluding Vietnam this would have almost stagnated as most of this increase was

contributed by Vietnam.

As depicted by the below graph World production of pepper is likely to be reduced,

compared to last year. Reasons behind in decreased production are the lower

international prices, unfavorable weather conditions particularly in Vietnam and poor

maintenance of plantations in Indonesia and Malaysia, that has caused yields to

decline significantly.

WORLD PEPPER PRODUCTION (CHART)

PERCENTAGE SHARE IN PEPPER PRODUCTION 2005-06

Pepper production in India is stagnated since 2002 after severe drought hit and poor

international demand. It has changed 33.335 growths in 1999 to zero growth in last

five years. Even in Indonesia and Malaysia production is stagnated. This year season

pepper production in all the major countries like Vietnam, Brazil, Malaysia, and

Srilanka is decreased by 25% to 30%. But in 2005, India achieved a little growth in

pepper production as compare to last few years. World pepper Production in major

producing counties is less against the projected demand of 216000 Mt in 2005 (last

season), the total quantity available for export from all producing countries estimated

to be only about 171900 MT.

INDIAN SCENARIO

India holds a supreme position in the production of pepper. Two of its celebrated

varieties are `Malabar Garbled’ and `Tellicherry extra bold’. The finest Indian pepper

is grown in the monsoon forests of the Malabar Coast in Kerala. Kerala is the

originated place of black pepper in India. It grows nearly 95% of the country's black

pepper, with the remaining being grown in Karnataka and Tamil Nadu. Small amounts

are also grown in Goa, Andhra Pradesh, Orissa and Assam. India exports to more than

120 countries. India produces about 52 varieties of spices and is the world's second

largest producer and exporter. Generally around 75% of production of pepper is

exported. The consumption in producing countries except in India is insignificant.

India consume about 30 – 40,000 MTs of pepper.

India has a relatively stable production capacity. For the past few years, its local

production has been absorbed by its local consumption and inter-border trade. Its

exports have been steadily declining, while its imports are growing. Maximum

anticipated export figure would be at 10,000 tons. Even then, India may have to

import a significant amount before it can export. Pepper production in the India fell

by nearly 30% in the last season due to erratic monsoon in the growing regions.

Inappropriate pollination and poor berry formation due to heavy rains and exhausted

pepper spikes and with yield about 50% lesser production.

STATEWISE PRODUCTION IN INDIA DURING 2005-06

(prpepare chart)2005-06

Kerala 42,900

Karnataka 1,525

Tamil Nadu 500

Andamans 75

Total 45,000

IMPORT OF PEPPER

There is an improvement in prices particularly in India, where the average spot price

rose marginally by 1%. Trading at the Commodity Exchange was active.

The United States imported 70,540 tons of pepper in 2006 valued at US$ 135.5

million comprising 55,500 tons of black, 7,800 tons of white and 7,240 tons of ground

pepper. This was an increase of 5% compared to import of 66,890 tons in 2005.

Import of black pepper increased by 6% and 8% for white pepper, while import of

ground pepper declined marginally by 3%. Vietnam, Brazil, Indonesia and India were

the main sources of pepper imported into the United States. Import of white pepper

originated mostly from Indonesia and Vietnam, while import of ground pepper were

mostly from India and Germany.

Major importing countries

USA

Netherland

Singapore

Germany

WORLD EXPORT OF PEPPER

The world black pepper market showed a mixed trend. Prices in India eased, while at

other producing countries increased. At Kochi, trading at the Commodity Exchange

remained active, particularly for March and April contract. Prices however declined

marginally by 1 – 3% compared to last week.

Unfortunately, this year's weather is inconvenient for pepper cultivation, as a result,

black pepper volume for export will be reduced by 10 percent in Vietnam.

Similarly, the market for white pepper was also mixed. In Bangka, local prices eased

by 2%, while in Sarawak, the price increased by 2%.

During 2006 (January – December), Indonesia exported 17,110 tons of black pepper

from Lampung valued at US$ 30 million compared to export of 18,435 tons in 2005 or

a decline of 1,325 tons (7%). In terms of value however, there was a significant

increase of 20% from US$ 25 million in 2005. The United States remained as the

main market for Lampung black pepper, followed by India and Singapore. During

2006 Indonesia exported 10,650 tons to the United States against 13,700 tons in

2005.

The pepper harvest in Lampung has been completed and the output is estimated to

be only 75 per cent of previous year's crop. Good demand during the harvesting

season has absorbed pepper quickly from the farm level.

AROUND THE WORLD

Brazil

The 2006 year showed brazilian exports dropping by some 20% with very small

stocks left around 10,000 m. Crop is also estimated smaller around 40,000 mt but

local consumption is stable. Brazil had lower crop this season due to unfavorable

weather conditions. In the beginning of the pepper season Brazil producers tried. But

in 2007, Brazil has traded 20-thousand tonnes of the 35-thousand tonnes produced

and has expressed intent to stock the rest of 15-thousand tonnes. However, entry of

Vietnam as a major exporter affected the Brazil pepper market.

Vietnam

Vietnam pepper output is also estimated to decrease in 2007. Pepper production in

Vietnam was lower than previous year because of drought occurrence. The rainy

season ended earlier than expected which affected the crop output. Production in

Vietnam, the world's top producer of pepper, is estimated to be around 10000 tons.

Vietnam has traded 70 per cent of its domestic production and has virtually moved

out of global scene.

Indonesia

Due to lower prices for pepper in the world market in last year discouraged many

farmers to shift their crop from pepper to other cash crop. Indonesia has also got the

bumper crop from past few years so there are chances of exhaust of the pepper

vines and it takes time to recover.

China

Increased domestic demand for pepper forced china to import of pepper from

Vietnam last year. There is considerable increase in consumption of pepper by china.

There are chances of increase in prices of pepper due to high domestic demand in

China.

Malaysia

Compare to other pepper producing countries Malaysia has higher cost of production

of pepper in due to higher labour cost and higher cost of living, production of pepper

in Malaysia is facing a downward trend.

FUTURE ESTIMATION 2007

Indian pepper output decreased by 15-20%. With production around 35000-40000

tonnes/year. Crop failure in India and Vietnam may push the prices up by around 20

to 25 % in 2007.

PRICE ANALYSIS

Pepper is the perennial crop, the production mainly depends on the southwest

monsoon during (June and July) that time flowering in pepper wines determines the

production level for that particular year. Based on the spot market the details of

arrival pattern of Pepper in Kochi market as depicted below.

Arrivals Patters in Kochi Market (Daily average arrivals)

February to April – 4000 tonnes

May to August – NO ARRIVALS ONLY AFLOAT PARCELS THROUGH BROKERS

September to November – SAME AS ABOVE

(SPOT PEPPER PRICE CHART)

Monthly Average price (2005-06)

02000400060008000

1000012000140001600018000

Month

Pri

ce (

Rs.)

Monthly Averageprice

ESTIMATION

PARTICULARS QUANTITY

CROP 2006-07 37/42000 TONNES

CARRY OVER STOCKS 20000 TONNES

TOTAL 62000 TONNES

ANTICIPATED IMPORTS 15000 TONNES

BALANCE 77000 TONNES

EXPECTED EXPORTS 12900 TONNES

DOMESTIC CONSUMPTION 50000 TONNES

REMAINING BALANCE 14100 TONNES

FACTORS TO WATCHOUT

Rains & disease have affected the crop

world pepper production is estimated to be 15 - 20 % lower in 2007

Huge export orders from USA and EU

Tight supply situation in overseas market

Lower crop in Brazil and Indonesia

Speculative activity in Indian markets leading high volatile movement

FUNDAMENTAL SCENARIO

Incessant heavy rains last year coupled with diseases are said to have

resulted in a sharp fall in the pepper production in the country. The upward

trend in the futures market has led farmers here to hold back anticipating

further rise in the prices. Arrival of un-garbled pepper has dropped.

Lower crop in major producing countries like Vietnam, Brazil and Malaysia due

to unfavorable weather conditions.

At the same time, global pepper consumption is estimated to grow at 3.46 per

cent a year.

It is likely that there would be a tight supply position this year also.

Prices are going continuously up in 2007 but because of Export demand may

increase in April, which can give support to falling prices

INTRODUCTION

Cumin seed commonly know as Jeera (Cuminum cyminum) belongs to Apiacae

family. Though Cumin is a native of Egypt, it now mostly produced in India. India is

the largest producer and consumer of Jeera (cumin seed) in the world. Jeera is an

ancient spice having a history of over 5000 years and referred as native to the

historical Levant region and northern Egypt. It had a major role as a flavoring, spice

and medicinal uses throughout history. Cumin is used mainly where highly spiced

foods are preferred. It features in Indian, Eastern, Middle Eastern, Mexican,

Portuguese and Spanish cookery. It is an ingredient of most curry powders and much

savoury spice mixture. Indian cumin finds worldwide use in foods, beverages, liquors,

medicines, toiletries and perfumery. The production of Jeera in major competitive

countries also affects the demand and prices of Jeera. The production of Jeera in

Turkey, Iran and Syria affects the export prices and volume of Jeera. Jeera is a

tropical plant and grown in cooler regions which is best suited for sandy soil. It is

grown from the seed. It requires less water and more cold for its better growth with

ideal temperature of 25 to 30 degree. High humidity during flowering & fruit set,

causes fungal diseases in this crop.

USAGES

It had a major role as a flavoring, spice and medicinal uses throughout history. Cumin

is used mainly where highly spiced foods are preferred. It features in Indian, Eastern,

Middle Eastern, Mexican, Portuguese and Spanish cookery. It is an ingredient of most

curry powders and much savoury spice mixture. Smoke in a pipe with ghee, it is

taken to relieve the hiccups. Cumin also stimulates the appetite. Moreover Indian

cumin finds worldwide use in foods, beverages, liquors, medicines, toiletries and

perfumery.

CULTIVATION PATTERN

Cumin plant basically thrives on a hot, tropical climate, but can also be cultivated in

the cooler regions in a green house. The cumin crop can be produced on almost all

soil types but the soil, which suits the best to this crop, is a well-drained, fertile sandy

soil type. It needs a minimum of 3 to 4 months of duration period after which it is

harvested. Cumin plant has a good tap root system that makes it a drought resistant

plant.

In India the jeera plant is grown as a Rabi crop i.e. it is sown in the winters in the

months of October to December and is harvested in the months of February, March

and April. In other cumin cultivating countries in the Middle East, the crop is planted

in the months of April and is harvested in the months of August and September. The

plant becomes mature and ready to harvest when it turns yellowish brown. After the

crop gets harvested, the cumin seeds are cleaned up through the winnowing process.

SEASONALITYSo

WING DURATION

Showing Duration Harvesting Production

centres

Major

producing

countries

Major importing

countries

October-

November

4 Months February-

March

Gujarat,

Rajasthan

India,

Turkey,

Iran, Syria

Bangladesh, Brazil,

Japan, Malaysia, Nepal,

Singapore, UAE, UK

Duration of Jeera crop is about four to five months. Sowing season starts during

October continues till November. Harvesting starts from February and will continue

till March. Jeera crop is highly sensitive to rain, if rain occurs during harvesting time

(February to March) quality of the Jeera will be badly affected and which affects

production also. It will turn black color and fetches lowest price in the market.

Moisture content will be high during this season and may affect the quality.

Harvesting season in Iran, Syria and turkey is May –June.

MAJOR GROWING CENTRE

Mehasana (Unjha)

North Gujarat – 4 districts

i. Sabor Khati

ii. Patan

iii. Kutchh

iv. Saurashtra

Rajasthan

SUPPLY AND DEMAND DYNAMICS

In India, cumin grows abundantly in the mild, equable climate of Gujarat and

Rajasthan where rich well-drained, sandy, loamy soil and the sunny, conducive

environment is available. They contribute almost 90 per cent of total cumin

production in the country. Rajasthan is the largest producer of cumin seeds

contributing about 50-55 per cent of the total production. India is the biggest

consumer of cumin seeds and as a result, the domestic market absorbs almost 90

per cent of the production. The annual domestic demand is about 20 lakh bags i.e.

about 1.1 lakh tonnes.

PRODUCER COUNTRIES

India

Mexico

Portugal

Spain

Turkey

China

Japan

Netherlands

France

Morocco

The world market structure regarding jeera is very much concentrated as bulk of the

production is performed by a fewer countries and only those countries are able to

export this spice to the rest of the world. The major cumin seed exporting countries

are India, Turkey and Iran.

India was the primary exporter of cumin seeds and cumin oil in the world since few

years but comparatively new entrants in the market like Turkey and Iran are

providing stiff competition to now. These countries are able to provide the spice at

much cheaper prices than India and hence are gaining advantage over it. Most of the

cumin seeds are exported to the countries that do not produce jeera themselves and

make huge markets for the spice.

FOREIGN CONSUMERS

United States

Singapore

Japan

United Kingdom

Saudi Arabia

Bangladesh

Brazil

Nepal

Malaysia

INDIAN SCENARIO

India occupies first in production and consumption of Jeera in the world. India’s

production sums up to 1 to 2 lakh tons of jeera per year that makes it the leading

producer in the world. It contributes about 70% in the total world production. The

Industry size estimated to be around 650crore per annum. Average annual

production ranges from 1 to 2 lakh MT. The area underwear in India declined from

307046 hectares in 1996-97 to 288832 hectares in 1997-98.where as production

remained steady due to higher yield levels (Average 385 kgs/ha) .The area under

cumin in India increased from 3,15,781 hectares in 2000-01 to 5, 26,634 hectares in

2001-02 and the output increased from 1, 39,356 tons to 2, 06,410 tons in 2001-02.

Acreage under Jeera has declined from 147900 hectares in 2003-04 to 76600

during2004-05, about 51% of the area fallen during this period

Area Under Jeera

0

100000

200000

300000

400000

500000

600000

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07(E)

Year

Are

a(H

ects

)

Area (Hects)

It was 76600 hectares in 2004-05 and that was increased up to 362000 hectares in

2005-06 .It is again expected to increase up to 412000 hectares in 2006-07. In

Gujarat, the area has increased by about 17000 hectares in 2006-07. The

consumption of cumin seed in rest of the world, leaving India aside is only between

25,000 to 30,000 tons.

Production of Jeera In India

0

50000

100000

150000

200000

250000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07(E)

Year

Pro

du

ctio

n

Production (tonns)

The production of cumin was 143000 MT in 2003-04 that was increased to 156000

MT in 2004-05. But again because of unexpected rain it fell to 121000 MT in 2005-06.

Jeera whereas production was estimated to be at around 35,000 to 40,000 MT during

2006-07 as a result of severe crop damage in Rajasthan due to unseasonal rain.

March and April are the sowing season of Jeera in major growing countries like Turkey

and Syria. Cloudy weather conditions and rain during this period may delay the

harvesting as well as lower production level of Jeera in these countries.

PRICE TRENDS

The price of jeera becomes highly uncertain during the period of January to march

because this is the harvesting season for cumin that determines the total amount

supply that severely affects the price of the jeera. Again during the months of august

to December there would be less supply again the amout of demand as this period

faces no increase of supply from any part of the world. may –July is the harvesting

season in Iran, Syria and turkey that provides fresh supply to the market that

decrease the export of India so price of jeera goes slightly down.

In, India Jeera production is confined to Gujarat and Rajasthan as these are the major

producing states in our country. These states contribute around 90% to the total

production. Rajasthan stands first in both area and production with 50% to

60%contributing to the total production, followed by Gujarat contributing around 40

to 50percent to the total production in the country.

In Rajasthan the area under cultivation during year 2000-2001 is 1,99,839 hectares

with production of about 76760 M.T. The area in Rajasthan has increased drastically

to 321201 hectares in 2002-2003 compared to 2000-2001. However, area in Gujarat

remained steady compared to Rajasthan. In 2006, Area under Jeera has come down

in both states as a result of higher prices of Fennel seed in the market. The lesser

attractive prices of Jeera influencing many farmers to shift from Jeera to other cash

crops. Jeera production in Rajasthan declined from 145110 tones in 2001-02 to 70478

tones during 2002-03. Where as production in Gujarat remained steady at 62000

tones.

STATE WISE PRODUCTION OF JEERA

The major districts that are indulged in the production of this crop are:-

Barmer (Rajasthan)

Jalore (Rajasthan)

Nagaur (Rajasthan)

Pali (Rajasthan)

Ajmer (Rajasthan)

Bhilwara (Rajasthan)

Tonk (Rajasthan)

Jodhpur (Rajasthan)

Jaisalmer (Rajasthan)

Sirohi (Rajasthan)

Sikar (Rajasthan)

Bikaner (Rajasthan)

Banaskantha (Gujarat)

STATE WISE PRODUCTION OF JEERA

020000400006000080000

100000120000140000160000

(YEARS)

PR

OD

UC

TIO

N(M

T)

RAJSTHAN (MT)

GUJARAT (MT)

Although, Rajasthan is the major producer of Jeera, the major trading

Although, Rajasthan is the major producer of jeera, the major trading center is at

Unjha in the sate of Gujarat. The prices of Cumin seed in Gujarat markets in

particular is normally high compared to markets in Rajasthan. Due to on spot cash

payment and participation of large number of exporters, traders, processors and

agents, many farmers in Rajasthan carry their produce to the markets in Gujarat.

Gujarat, with Unjha as the center is the major trading zone for Unjha.  "Earlier, cumin

seed used to be traded in the mandies at Niwai and Kekri also in Rajasthan. The

mandi in Nagaur is the largest center for cuminseed in Rajasthan.  The price of cumin

seed in Gujarat mandies is normally higher Therefore many farmers in Rajasthan also

carry their produce for marketing in the mandies in Gujarat. Delhi, Jaipur and Rajkot

are the major terminal markets for jeera, from where it moves to other consumption

centers of the country. 

In Rajasthan jeera crop is harvested in the month of March and April due to late

sowing than Gujarat. Crop estimation is coming lower (40% less) from Rajasthan

following crop damage due to heavy rains. Arrival from the saurastra region has

started coming, which is lower (30- 40%) than last year’s arrival. There is continuous

stockist demand hitting the spot market due to crop shortage talks, which is

expected to improve further at the lower price levels.

As on November 30, the shipments stood at 20,250 tonnes tonne worth Rs 151.5

crore against the set target for 2006-07 of 20,000 tonnes worth Rs 130 crore, while

exports in the same period last fiscal were at 6,026 tonnes worth Rs 46.69 crore. In

terms of value, it has crossed the target of Rs 130 crore by Rs 21.50 crore.

JEERA TRADE

India is the major producer, consumer and exporter of Jeera in the world. India

exports cumin seed to Bangladesh, Japan, Malaysia, Nepal, Pakistan, Singapore,

South Africa, UAE, UK, USA and many other countries and cumin seed powder to

Canada, UK, USA, etc.

The highest-ever exports in the past were 18,891 tonnes worth Rs 178.35 crore in

2000-01. Shipments of cumin, which began in 1960-61 with 1,201 tonnes worth Rs

20.1 lakh, crossed the 10,000-tonne mark only in eight financial years during the past

46 years.

EXPORT PROFILE

EXPORT OF JEERA FROM INDIA

0

5,000

10,000

15,000

20,000

(YEARS)

QT

AN

TIT

Y(M

T)

0

50

100

150

200

VA

LU

ES

(R

s. C

r)

Quantity(MT)

Value (Rs. Cr)

Indian exports of Jeera declining on account of stiff competition from Turkey, Syria

and Iran. They are capturing our export market by offering Jeera at lower prices and

bulk of their production is reserved for export purpose. The total export of Jeera from

India during2000-01 was 18891 tones valued Rs. 17835 lakh. India's exports of cumin

seed fell from 10,422 tons valued at Rs.93 crores in 2002-03 to 7,957 tons valued at

Rs.59 crores in 2003-04. India exports cumin seed to Bangladesh, Brazil, Japan,

Malaysia, Nepal, Singapore, UAE, UK, the US and many other countries and cumin

seed powder to UK, the US, etc. India also exports oleoresins of cumin seed and

cumin seed oil to USA, UK, UAE, etc in 2001-02, India exported 2231 tons of

oleoresins oil valued at Rs 3494 lakhs.

.

WORLD SCENARIO

Major importing destinations for Jeera from the producing centers are USA, UK, EU,

Singapore, Middle East and South East Asia. The world demand for cumin is around

12000 to 15000 tones. From India average quality Jeera has been exported to

Bangladesh and Gulf countries. Where as EU usually imports the superior quality

Jeera form the producing countries. With supreme quality India stands first in export

market although there is stiff competition from other producing countries.

SYRIA

Crop had better crop this year with production of Jeera around 3 to 4 lakh bags.

However, recently it hiked the Jeera prices in international market by $15 to $45 per

MT due to huge demand.

TURKEY

Turkey is not entering to international markets due to lesser crop. The cumin seeds

prices are sky-rocketing in Turkey, in spite of total lack of buying demand, due to

local speculation within turkey and reports of a very small new crop may lead to

lesser supply to the world market.

IRAN

Although Iran is the major producer of Jeera, it has imported about 50,000 quintals of

Jeera this year as crop has been severely damaged due to bad weather conditions.

Newly harvested crop reported to be poor quality and will not meet the international

specifications.

FUTURE ESTIMATION 2007

Jeera is Rabi crop, sowing starts during October - November and harvesting from

February to May. Rain during harvesting period affects the quality of the Jeera and

may lead to poor arrivals with rally in prices. Based on the spot market the details of

arrival pattern of Jeera in Unjha market as depicted below.

UNJHA JEERA

Arrivals Patters in Unjha Market (Daily average arrivals)

February to April – 25,000 to 35,000

May to August - 4,000 to 8000 bags

September – November – 6,000 to 8,000 bags

Note: 1 bag = 40 to 60 kgs. 25,000 t o 35,000

Prices look strong in the coming season as depicted by the above price graph. The

Average prices during 1989-90 were Rs.1450 per quintal and it has increased to

Rs.7081 per quintal in 2001-02. Currently the average model prices were quoting at

Rs. 6000 to Rs 6500 per quintal in Unjha market. Over the years prices were

increasing due to lower crop, heavy export orders and increased domestic demand

Jeera usually follows the three year cycle (price) as depicted in the above graph.

Every three years prices will fall and will go up after completion of the cycle. It was

75-82 per kg during October to January. IT is expected to be 10300 during the month

of march.

Compared to other months February, March April months were having lower prices

due to heavy arrivals to the market. Prices were high in the month of July to

September. As harvesting starts from February, arrivals in the spot market starts

from February end and continue up to March –April and then decreases in May-June.

During June to September prices of Jeera were at peak levels because huge demand

from the exporters and local retailers. Due to lower availability during these months

only stocks have to meet the demand. Prices are expected to rally during June to

October as depicted from the above graph. More exports orders and shortage of

supply may lead to rally in the prices.

PRICE TARGET

The prices of Jeera mainly depend on the exports and domestic demand. Huge

overseas demand and lower crop in competitive countries may lead to spurt in the

domestic Jeera prices.

ESTIMATION

PARTICULARS QUANTITY

CROP 2006-07 35/40000 TONNES

CARRY OVER STOCKS 40000 TONNES

TOTAL 80000 TONNES

ANTICIPATED IMPORTS NIL

BALANCE 80000 TONNES

EXPECTED EXPORTS

DOMESTIC CONSUMPTION

REMAINING BALANCE

Nearly 18-20 thousands bags/day are coming at the Unjha market with steady

demand of 13-14 thousand bags/day.

MARKET INFLUENCING FACTORS

Seasonal variations

Broad range demand

Weather fluctuations

Structure of the market

Flow of information

FACTORS TO WATCHOUT

Farmers may shift crop from Jeera to Fennel seed next season because of

prevailing higher prices of Fennel compared to Jeera.

Next crop sowing will be in October - November and new crop will be available

for market only after February next year.

Arrivals may come down further from next month onwards as arrivals from

farmers and stocks will dry up slowly.

Currently daily market arrivals are around 4000 to 6000 bags.

High domestic demand and buying from export orders.

i. The prices display high volatility due to its seasonal nature and

widespread demand within and outside the country.

ii. Weather at the production centers, pests and diseases have an

influence on the production of spices.

iii. The market is not perfectly organized and this influences the

information flow.

FUNDAMENTAL SCENARIO:

The most active Jeera futures at NCDEX gained Rs.1300 in last one month

following strength in the spot markets. Declining arrivals due to end of the

harvesting season resulted in the sharp rally and strong sentiment in the

international markets also fuelled the upsurge in the prices. Lower production

in major producing countries like Turkey and Iran kept the produce in demand.

We expect further upward movement in prices and the following are the

factors to watch out for

Daily average arrivals in the Unjha physical market are around 7000 to 9000

bags compared to 25000 – 30000 bags in the peak season.

Only warehouse stocks are available in the market

Crop damage in Iran and Turkey

Only 30% of the crop available in these producing countries

Opportunity for India to emerge as major exporter

No export from Syria due to poor quality of Jeera crop

Increased demand from Bangladesh

Higher demand from domestic markets

More export orders expected from UAE and other countries

Lower Jeera prices in last month attracted many traders and stockists for

heavy buying in the spot market and huge stocks by them may lead to heavy

speculation in the futures market

INTRODUCTION

Chilli (Capsicum annuum L.; Capsicum frutescene L.), also called red pepper’, is an

important cash crop in India and is grown for its pungent fruits, which are used both

green and ripe (the latter in the dried form) to impart pungency to the food. As a

condiment, it has become indispensable in every Indian home. It is also used

medicinally, and in chutnies and pickles. The pungency is due to the active principle

`capsicin’ contained in the skin and the septa of the fruit. The world consumption of

chillies and paprika is going up due to the increasing popularity of ethnic foods. The

increased availability of oleoresins and spice oils of chilli has also enhanced its

consumption in various food preparations. India is the largest producer of chillies in

the world but its production pattern is highly erratic.

AREA OF CULTIVATION

The chilli crop is grown from almost the sea-level up to an altitude of 1,500 metres in

tropical and subtropical regions, with an annual rainfall of 60-150 cm. In India, chillies

are now grown in almost all parts. At present, Andhra Pradesh, Karnataka,

Maharashtra, Orissa, Rajasthan, Tamil Nadu and West Bengal account for 85.8 per

cent of the total area and 89.3 per cent of the total output of chillies in the country.

Chilli is cultivated in Guntur, Warangal, Khammam, Krishna, Hyderabad, Pundur,

Nizamabad, Cuddapah, Rajahmundry and Nellore districts in Andhra Pradesh; Hubli,

Gadag and Byadgi in Karnataka; and Nashik, Ahmednagar, Sholapur, Aurangabed,

Nanded, Amravati and Lasalgaon in Maharashtra. In Punjan and Haryana, chilli is

cultivated in Amritsar, Nabha, Patiala, Sunam and Samna; in Uttar Pradesh in Bareily

and Khurja; and in Tamil Nadu in Tuticorin and Salem. In India, chilli is being

cultivated mostly as a rain-fed crop therefore its yield fluctuates from year to year

and is generally poor. Recently, its production has been taken up in irrigated areas in

non-traditional states like Punjab and Uttar Pradesh also where the yield has been

better which is likely to boost its output in the coming years.

SEASON

The chill crop does well in the tropical and the sub tropical regions with annual

rainfall of 60-150 cms. Very high rainfall during its growth is harmful. When grown in

the hot weather or in lower-rainfall tracts, it is cultivated as an irrigated crop.

Normally the sowing is done in Sept-Oct and plucking in January. The chilly plant lasts

for one season only. It is plucked 3 to 4 times in the season.

SOIL

The rain-fed crop does well on deep, fertile, well-drained black cotton soils. In ill-

drained soils, the plants shed their leaves and turn sickly even with temporary water-

logging. Under irrigation and good manuring, excellent crops can be raised in sandy

and light alluvial loams as well as in red loamy soils.

ROTATION

Under rain-fed conditions, the crop is rotated with jowar, ragi, cotton, groundnut and

castor. As an irrigated crop, it is grown in rotation with sugarcane, turmeric, ragi,

maize or with any of the vegetables. Since the pests and diseases are common to

chilli, brinjal and potato it is not advisable to include them in a rotation. The irrigated

chilli crop is sometimes grown mixed with garden crop in northern India, it is

sometimes allowed to grow as a stand-over crop for one or two seasons. The winter

crop is planted from July to September and the summer crop in February and March.

Whereas these are the two important seasons for its cultivation, a third crop, known

as the mid-season (May-June) crop, is also taken in certain parts of the country.

CULTIVATION

The land is ploughed and harrowed 3 or 4 times to obtain a fine tilth. About 100

cartloads of farmyard manure or compost per hectare are applied at the last

ploughing. The land for irrigated chilli is laid out into beds, 2-3 square metres, or is

made into ridges ½ to 1 metre apart. Some farmers also do sheep-penning and pen

about 5,000 sheep per hectare, in addition to the application of manure.

SUPPLY AND DEMAND DYNAMICS

Indian scenario

India is the largest producer and contributes 25% to total world Production. It is also

largest consumer and exporter of Chilli. Chilli is the most common spice cultivated in

the country. Of the total production about 30% are of pungent having International

trade and India is among the top. Area and production seems to continue to decline

as depicted in the chart below.

The production of Chilli for 2006 has wane by 35 to 40 percent because of heavy

rainfall. About 30 to 35 percent of the crop is estimated to damage due to floods in

the major producing regions of South India. The Area under Chilli for 2005-06 has

decreased around 300000- 320000 hectares as compare to in 2004-05. But in the

current year 2006-07 it is expected to increase to 8, 40,000 hectares & the

production is also expected to go up about 25% to 30% compared to previous year.

In India, Chillies are grown in almost all the state through the length and breadth of

the country. Andhra Pradesh is the largest producer of Chilli in India contributes

about 27% to the total area under Chilli, followed by Karnataka (19%), Maharashtra

(12%), Orissa (9%), Tamil Nadu (8%) and other states contributing 18 % to the total

area under Chilli.

PERCENTAGES SHARE IN AREA 2005-06

Area & Production Of Chilli In India

0

2

4

6

8

10

12

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07(E)

Year

Are

a

0

2

4

6

8

10

12

Pro

du

ctio

n

Area (lakh hectares) Production (lakh MT)

STATE WISE PRODUCTION OF CHILLI

The production of Chilli in India is dominated by Andhra Pradesh which bestows 49 %

to the total production. Karnataka is the second largest producer contributing 11% to

the total production followed by Orissa (7%), Maharashtra (6%), Madhya Pradesh

(4%), Tamil Nadu, Uttar Pradesh and others during 2005-06.

INDIA’S STATE-WISE CHILLI PRODUCTION 2005-06

Andhra Pradesh is the major Chilli producing state in India, the major chilly growing

districts in Andhra Pradesh are Guntur, Warangal, Khammam, Krishna and

Prakasham. Guntur is the biggest Chilli market in Asia contributing 30% to the total

production of AP with annual turnover of around 600 crore. Area and Production of

Chilli in this area decides the prices. Production in 2007 is expected to be 15 % in

Karnataka, more than 50% in Andhra Pradesh and old stocks in Guntur estimated to

be around 25 lakh bags, so increased production in major producing states due to

increased acreage and favorable climate may increase the supply in the market.

CHILLI TRADE

India’s chilli exports are currently in bull stage and Chillies exports from India are

mostly to Sri Lanka, USA, Nepal, Mexico and Bangladesh. Among these countries,

USA, Sri Lanka and Mexico are the major importers of Indian Chillies.

EXPORTS SCENARIO

AVERAGE PERCENTAGE SHARE IN TOTAL EXPORTS OF

INDIA (2005-06)

United States of America is the major importer of Chillies from India which

contributes 26% to the total exports from India. Srilanka stands second with 24%

followed by Bangladesh (13%), Malaysia (6%) and others (28%).

EXPORT PERFORMANCE

India exports Chilli in the different processed forms like Chilli powder, dried chillies,

pickled chillies etc and it is mainly exported to USA, Sri Lanka, Bangladesh, the

Middle East and the Far East. There is a lot of voltage in the Indian Chilli exports by

dominating in the international markets and processed chilli can bring big boost to

the prices which can avail to higher exports.

CHILLI EXPORT PERFORMANCE 2005-06

Among the total exports dry chilli contributes a majority of 72% to the total exports

from India, followed by Chilli powder with 27 % and Chilli seed (1%).

WORLD SCENARIO

COUNTRY WISE PERCENTAGE SHARE OF EXPORTS

India26%

China26%Pakistan

8%

Morocco 8%

Turkey5%

Spain 18%

Mexico9%

India is the major exporter in the world market and the total export of chilli from India

is on an average only 4% of total production. Huge fluctuations in Indian exports are

mainly due to increased domestic demand and uneven production interrupted by

erratic monsoon or some time drought. India exports chillies to maximum countries

in the world in which Srilanka and US is the major importer by contributing 50% to

the total Indian exports. Due to proximity and old relationships were the important

reasons for dominance of Indian chillies in Srilanka. China has emerged as the major

exporter in the world market and as a serious competitor in the International market

for India. China is penetrating in to all the major markets like Indonesia, USA and

Japan.

EXPORT TREND

EXPORTS OF CHILLI FROM INDIA

0

50000

100000

150000

2000-012001-022002-032003-042004-052005-06 2006-07(E)

(YEARS)

QU

AN

TITY

(MT)

0100200300400500600

VA

LUE

(Rs.

Cr)

Quantity(MT) Value (Rs. Cr)

The total export of Chilli from India during 2000-01 was 62447.68 tones valued Rs.

22973.30 lakh which has stood up to 86575.34 tones valued Rs. 36687.34 lakh

during 2003-04. Over the years exports were increasing at the faster rate. During

2004-05 about 138000 tones of Chillies with the value of 49900.00 lakh can be

exported from India. And as compared to 2004-05, export of 2005-06 was decreased

by 113250 worth the value of 403.50. But in the current year 2006-07 it is expected

to grow 25% because of increased production in the country as compared to last

year.

Japan also produces special varieties of Chillies called Bird's Eye, Santaka and

Hontaka types of chillies. But increased domestic demand in Japan hindered the

exports performance of Japan. Imported chillies in western countries consumed in the

food processing industry for its colour and pungency. Where as the countries like

United States of America, the United Kingdom, Germany and Sweden large quantities

of Chilli used in the manufacture of oleoresins and extracts. Apart from India major

producers and exporters of chillies are China, Pakistan, Morocco, Mexico and Turkey .

The chilli crop in China for 2006 is expected to arrive during January and Bangladesh

anticipating better crop this year. But still India has encouraging demand from

Srilanka and other countries mainly because of aroma of Indian Chillies.

REASON FOR INCREASE IN EXPORT

The upswing in the production of chilli crop and a consequent availability of large

exportable surplus in the country when the crop in other major producing countries

declined have resulted in a boom for chilli exports touching an all-time high of an

estimated 1.38 lakh tonnes valued at over Rs 499 crore in 2004-05. But again it was

declined in 2005-06. India started exporting Chilli in 1960-61 with 8,364 tonnes

valued at Rs176 crore, was in 2003-04 with 86575.34 tonnes valued at Rs 36687.81

lakhs. In 2002-03, it was 81,022 tonnes valued at Rs 315.14 lakhs. After 2001-02

India’s export performance was excellent, higher international and domestic demand

can further push the exports.

Good export demand is coming from Bangladesh and China. This year 2006-07, chilli

crop is expected to be better (10 lakh tonnes) as compare to the last years (6 lakh

tones) but carry forward stocks are considered to be nil. LCA-334, which is getting

traded over exchange, has also started coming, which is getting good export demand

in the market.

Comparative advantage of India chilli exports

If Srilanka imports Chilli from China - cost per kg of import is nearly – Rs.15

If Srilanka imports Chilli form India - cost per kg of import is only – Rs. 7

Srilanka is the major consumer of chilli in the world and it purely depends on the

imports only, so, it will prefer India as the major source for chillies because of

proximity and lower costs.

FUTURE ESTIMATION

Factors influencing the prices of Chilli

Arrivals in the market

Historical price movement

Climatic conditions

Shifting towards alternate crops

The Price Variation in the Chilli also depends on the trade activities like Export,

Import, Domestic demand and crop conditions in major growing countries.

To analyze the domestic price outlook above factor plays important role, these

factors compared with the historical prices which will give us the proper price out

look on Chilli.

The arrival of chilli start in the last week of March in major markets and extends till

May end from Karnataka and Madhya Pradesh. Fresh crop of chilli has started coming

from different origins. Heavy arrival from major chilli growing area i.e. Guntur has

also started. Nearly one-lakh bags are coming at the Guntur market but same

quantity has offloaded from the market.

Peak arrivals starts from March.

since Chilli is cultivated under irrigation sources and also in dry conditions, Unlike

peak or low arrivals during harvesting and off-seasons in other commodities, it

continues to arrive throughout year into the markets, because as soon as the

commodity arrives in the market after harvest it will be purchased by the traders

keep the stocks and release into the market as prices move up. Dry Chilli can be

stored for 2 years.

The Average prices during 1985-86 were Rs.1088 per quintal and it has increased to

Rs.3874 per quintal in 2003-04. The average model prices were quoting at Rs. 3101

per quintal in Guntur till December 2005. Over the years prices were increasing due

to heavy export orders and increased domestic demand. In current year 2006-07

because of sufficient rain the production has increased up to 25 to 30% so, the

prices of chilli are going to fell down.

CHILLI PRICE TRENDS

As compared to other months March, April, May months are having lower prices due

to heavy arrivals to the markets. Prices are high in the month of June, July, December

and January and till middle of February because of lower availability of crop. As

harvesting starts from January, arrivals starts from January and increases up to March

–April and then decreases in May-June, due to closing of market yard (4 weeks in

peak summer) during this time farmers are storing their produce in the surrounding

cold storages. During May to August prices of Chilli were at peak levels because huge

demand for dry Chilli from the pickling industry. Most of the pickle manufacturing

companies rush to the market for procuring the chillies. Due to lower availability

during these months only cold storage stocks have to meet the demand.

PRICE TARGET

The prices of chilli mainly depend on the exports and domestic demand. Prices are

expected to come down in near term as a result of higher production estimates.

ESTIMATION

PARTICULARS QUANTITY

CROP 2006-07 10.3 LAKH MT

CARRY OVER STOCKS NIL

TOTAL 10.3 LAKH MT

ANTICIPATED IMPORTS NIL

BALANCE

EXPECTED EXPORTS

DOMESTIC CONSUMPTION

REMAINING BALANCE

FUNDAMENTAL SCENARIO:

Crop harvest in February usually arrive to the market in the mid of February.

Due to favorable monsoon crop is expected to increase up to 25% -30%.

China and Bangladesh anticipating better crop this season but

export orders may continue from Srilanka.

Last year stocks in Maharashtra, Madhya Pradesh, Gujarat and other regions is

about nil but fresh arrival increase the supply that brings decrease in price.

Arrivals of 70000 bags have been reported in Guntur and spot prices steady in

this market

Arrivals will increase further in coming days

Demand also increase for chilli at these lower prices

All previous year stocks have got liquidated

Export of chilli is expected to increase by 25%

High spot prices during 2005-06 prompted many farmers to cultivate Chili in

large scale. Prices are expected to come down in near term (Feb 2007) as a

result of higher production estimates.

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