Forward Market Commission's recent introduction of two rules to rein in highly volatile pepper market has come in for serious criticism from traders and farmers alike.

Following this development, the pepper traders have sought the intervention of Spices Board to halt the continuous fall in the pepper prices.

The story begins when the FMC recently implemented special margin on both buyers and sellers besides restricting quantities to be taken delivery and given delivery.

According to traders in Kochi, due to these faulty rules black pepper market was showing a sharp decline both in spot and Future deliveries at the national exchanges.

When prices were on the increase, to control the volatility, special margins were imposed on buyers and sellers also. Market analysts say that they were actual hedgers/investors who had purchased spot material and sold Futures deliveries, which were trading at very high premium.

Thus, traders said, the investors, who had invested in the goods paid 10 per cent margin and also daily mark-to-market difference to the exchange on every increase, were further penalised by the special margin of 20 per cent on their sale position.

This caused in many small and medium investors liquidating their position and getting out of the business since they cannot pay further additional margin.

As a result, one section of the trade was discouraged and forced to get out of the business leaving the field for mere speculators and gamblers to take over the business through intra-day trading, said market analysts.

Again, the FMC imposed a second restriction limiting the brokers' position holding to 300 tonnes and individual clients to a maximum of 100 tonnes. When every broker/member have hundreds of clients it is impossible for them to cater the needs of genuine export buyers or hedgers within this limit.

Therefore, many operators had to forcefully liquidate their position since the rule was implemented on June 16.

All this happened when Vietnam prices are ruling high for good quality pepper because they are converting it into white, while Indonesia and Brazil are holding back their prices. As a result, the Indian pepper prices are the most competitive in the international market.

Since nearby Future deliveries, currently June and July, are trading below spot prices in both the national exchanges, exporters are venturing to buy those deliveries and selling overseas resulting in the stocks at the national exchanges getting reduced.
Thus, exporters will be taking delivery and shipping it out which is a very healthy scenario for Indian pepper industry as a whole.

Unfortunately, FMC had brought this new rule at a time when exporters were actively buying and taking delivery. The amendment of the rule will restrict exporters from taking delivery from the exchange which will effect India's exports very badly since availability of spot material in the open market is very limited while nearby Future deliveries are trading at a discount.

In fact, exporters buying those deliveries for export are actually stabilising the market while the stocks are moved out of the country, which is actually helping the pepper economy in general.

Given this scenario, the traders urged the board to intervene immediately to protect the interest of the pepper economy in general and pepper exporters in particular to ensure that Indian pepper, which has gained the overseas market back after a long gap of eight years.