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Shortage of premium crop may fuel chilli's fire

 

Cogencis, Tuesday, Sep 29, 2020

By Kavita Desai and Preeti Bhagat

MUMBAI/NEW DELHI – It was first the nationwide lockdown-triggered disruption in supply chain amid a pent-up demand for exports that set chilli prices on fire, and now it's a shortage of premium quality which is expected to keep prices elevated for some more time.

Chilli is India's most exported spice, of which demand is most for the Teja variety, followed by the Byadgi and LCA-334.

Since September, Prices Of The Export-quality Teja chilli at Guntur In Andhra Pradesh Have Risen By 2,000-3,000 rupees Per 100 Kg, And Those Of Byadgi Chilli Of Karnataka Have Risen By 2,000 Rupees

The Teja variety was being sold at 17,500-18,500 rupees per 100 kg, while the byadgi variety was quoted at 27,500-28,000 rupees. Prices of both the varieties are expected to increase by at least 10% over the next few weeks, and may cool off thereafter, market participants said.

"Strong demand and inadequate arrivals of premium quality in the market have supported prices so far," said Ashok Dattani, a Mumbai-based exporter. "There is strong demand from destinations like Bangladesh, China and Sri Lanka."

The offshore demand is for the superior quality chilli that meets global norms, and it is this segment that is facing supply shortage. Market participants believe high demand for exports and low supply are expected to support the bull-run in chilli prices for a few more weeks.

Following the nationwide lockdown that started Mar 25, exports of chilli came to a standstill but as soon as trade resumed in May end, the pent-up demand for Indian Teja variety started to push up prices. India is a major supplier of Teja chilli, especially to China, because of its premium quality.

"During the initial COVID-19 phase in Mar-Apr, exports were hit...in May, exports picked up rapidly and were tremendous," said Prakash Namboodiri, a member of the All-India Spices Exporters Forum.

Even as the pandemic is spreading in some countries and there are fears of a second wave, exports are likely to be least affected because nations are stocking up on food products.

Namboodiri said unlike other businesses, food business will not be affected much, and importing nations may buy at higher prices and sell in their respective markets at even higher prices.

Currently, the average arrivals of chilli in Guntur are in the range of 50,000-70,000 bags (1 bag = 40 kg), of which only 10,000 bags are of good quality, said traders.

Since September, prices of the export-quality Teja chilli at Guntur in Andhra Pradesh have risen by 2,000-3,000 rupees per 100 kg, and those of byadgi chilli of Karnataka have risen by 2,000 rupees.

In Madhya Pradesh's Indore, another major chilli market, arrivals of the new crop are expected to start from the last week of October, and may gain momentum by mid-November. However, export demand for Indore's chilli is expected to be subdued because pest attacks have affected the quality of the crop.

"There have been reports of damage to the new crop due to continuous pest attacks in Madhya Pradesh and heavy rains in Karnataka. This could also support the uptrend in prices to some extent," said Jagadish Patil, the owner of Byadgi-based B.G. Patil Group.

Since Jun 1, Karnataka has received 1,058.5 mm rainfall, against the normal of 828.3 mm, 28% above the normal, according to India Meteorological Department.

PRICE BREAKER

After the recent rise, prices of chilli may ease gradually after 1-2 weeks as overseas demand is expected to pause for a while when prices of the Teja variety rise beyond 20,000 rupees a 100 kg. The prices, however, are expected to stay at higher levels for some time, and may start to fall only after crop estimates are released and arrivals begin in the spot markets.

"Prices may turn a bit sluggish if export purchases stop due to high prices...new crop arrivals from Madhya Pradesh may also put a break on rising prices," Dattani said. 

High arrivals of fresh crop in Indore and expectation of a rise in supply from other producing centres such as Andhra Pradesh and Karnataka may also weigh on prices, said traders.

Prices of the Teja variety are expected to fall gradually and may touch 12,000-13,000 rupees per 100 kg by March in peak harvest season. Prices of the byadgi variety are expected to decline to 14,000-15,000 rupees over the coming months, said market experts.

Andhra Pradesh is the top chilli producer, accounting for around 45% of the country's crop, followed by Telangana, Madhya Pradesh, Karnataka and Maharashtra.

Production of chilli is expected to be higher this year as lucrative prices may move farmers to sow chilli in higher area. Even though the acreage as of now is low from the previous year, it's expected to rise in next few weeks.

Farmers in Andhra Pradesh have sown chilli across 103,581 ha as of Wednesday so far this year, compared with 107,040 ha in the previous year ended June, data from the state farm department showed.

Traders expect area under the spice to increase in coming months as farmers are likely to shift from cotton due to attractive prices this year.

Also, adequate carryover stocks in cold storage may also weigh on prices as it is sufficient for consumption until the new crop arrives, said traders.

"Stocks of chilli available in Guntur and surrounding cold storages in Andhra Pradesh is projected at 3.5-4.0 mln bags of 40 kg each, compared with 3.2-3.5 mln bags last year," Naval Khaitan, a prominent trader and exporter from Guntur.  End

Edited by Akul Nishant Akhoury

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