8 th September, Medium term(dec Jan) Supply Demand Price

Transcription

1 8 th September, 2008 Seasonal Outlook On Chilli Medium term(dec Jan) Supply Demand Price

2 Introduction Chilli is considered as one of the commercial spice crops. It is the most widely used universal spice, named as wonder spice. Different varieties are cultivated for varied uses like vegetable, pickles, spice and condiments. In daily life, chilies are integral and the most important ingredient in many different cuisines around the world as it adds pungency, taste, flavour and color to the dishes. Indian chilli is considered to be world famous for two important commercial qualities its colour and pungency levels. Some varieties are famous for the red colour because of the pigment Capsanthin and others are known for biting pungency attributed to capsaicin. The other quality parameters in chilli are length, width and skin thickness. Origin Chillies are believed to have originated from the warm northern regions of South America, and during the 16 th century, the Portuguese introduced the chilli to India. It belongs to the genus capsicum, under the solanaceae family. Uses The extracted capsaicin is used in pain balms, cosmetics, and pharmaceutical industry. Capsanthin is a pigment used for natural coloration in jam and jelly preparations. Extracts of chilli are used in the preparation of ginger beer and other beverages. It contains vitamins A, C & E. Climatic conditions Chilli is cultivated in tropical and sub tropical climates, at up to 2,000m altitude. Chillies are mostly cultivated as a rainfed crop in India. The most ideal climatic conditions are rainfall requirement of about mm per annum and temperature of about degree centigrade. Moreover, the soils should be light loamy and sandy loamy, with fertile soils rich in organic matter preferred for satisfactory growth of the crop. Also, the crop needs well drained soils with adequate soil moisture for growth.

3 Seasonality Chilli is a seasonal and annually grown cash crop. Its sowing starts after commencement of the southwest monsoon, i.e., from the first week of August and extending until October. Total crop duration is around 4 5 months, depending upon varieties cultivated, climate and the soil type. Harvesting is done through picking pickings are harvested within the season from December onwards. Arrivals start February and continue until April after a proper drying under sunlight. Figure 1: Chilli crop Seasonality pattern Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Sowing Growth period Arrivals Marketing period Popular varieties of chilli Guntur Sannam S4 Type: Guntur, Warangal, Khammam, districts of Andhra Pradesh Tomato Chilli (Warangal chapatti): Warangal, Khammam, East and West Godavari in AP Birds Eye Chilli (Dhani): Mizoram and some areas of Manipur Byadagi (Kaddi): Hubli District of Karnataka World scenario On the global front, according to FAO STAT, the total chilli production is estimated to be around lakh tones, down by 2.3% compared to last year s lakh tonnes. This figure is significantly lower than the historic high production of 26.4 lakh tonnes in The major cause for this significant decline in production in the last couple of years is due to unfavorable weather condition in major producing countries like India, China and Pakistan.

4 From Figure 2, we can infer that in the last seven years, global chilli production has registered a negative compounded annual growth rate of 1.32%.The top 10 chilli producing countries, accounting for more than 85% of the world production in 2007, were India, China, Ethiopia, Myanmar, Mexico, Vietnam, Peru, Pakistan, Ghana and Bangladesh. The lion s share is taken by India with 36% share in global production, followed by China (11%), Bangladesh (8%), Peru (8%) and Pakistan (6%). Figure 2: Chilli Global area and production Figure 3: Chilli production Country wise (Source: FAO). Domestic scenario India is the largest producer and consumer of chilli among other major producers in the world. India contributes about 36% to the total world production, and is No. 1 in terms of international trade, exporting 20% of its total production. From Figure 4, we can infer that since the last decade, chilli production in India is moving northwards on increasing demand from diversified sectors and changing consumption patterns. Dry chilli production rose by nearly 43% from 8.7 lakh tonnes in to 12.5 lakh tonnes in The cardinal factors driving this significant increase in production are the use of high yielding hybrids in place of varieties, increase in average yield from 1035 kg/ha to 1736 kg/ha, favourable weather conditions, and changing consumption pattern.

5 India harvested a bumper crop from 1998 to 2001, with an average yield of kg/ha. Better crop management practices and higher yield levels led to bumper crop harvest, resulting in a sharp fall in prices during the particular period. Due to unattractive prices, most of the farmers shifted their production to other cash crops like cotton, sugarcane, etc., thus resulting in a decline in area and production under chilli cultivation in subsequent years. Moreover, crop damage due to floods in major producing regions of South India, particularly in , resulted in a sharp decline in production to lakh tonnes. During that year, prices posted a historic high of Rs7000 per quintal in the domestic market. These attractive prices have prompted farmers to increase acreage under chilli cultivation over the last two years. Figure 4: Domestic chilli Area and production In , the total acreage brought under chilli cultivation is around 7.2 lakh ha, an increase from last year s 7 lakh ha. Rising export demand coupled with higher price realization in the domestic market have motivated farmers to bring more area under chilli cultivation. According to the Agriculture Department of India, primary estimates of chilli production were around 14 lakh tonnes on considering the increase in acreage from 7 lakh ha to 7.2 lakh ha in and favourable weather conditions. However, the production target was not achieved due to floods in Andhra Pradesh, a major producing center, at harvesting time, resulting in a sharp decline in production to 12.5 lakh tonnes from the earlier estimates of 14 lakh tonnes. However, production in showed an increment by 2.38% over previous year s 11.5 lakh tonnes. India, being the

6 largest producer, is also the largest consumer and exporter. According to trade sources, domestic consumption accounts for around 9.11 lakh tonnes per annum. Figure 5: Balance sheet for the year Production (lakh tonnes) Carry forward stock Total stock available (in 2008) Domestic consumption Nearly Exports (April to July 2008) At present available stock In India, chillies are grown in almost all the states throughout the country. Andhra Pradesh is the largest producer of chilli in India and contributes about 26% to the total area under chilli, followed by Maharashtra (15%), Karnataka (11%), Orissa (11%), Madhya Pradesh (7%). The remaining states contribute nearly 22% of the total area under chilli. Figure 6: Area under chilli cultivation in India The production of chilli in India is dominated by Andhra Pradesh which bestows 53% to the total production. Karnataka is the second largest producer, contributing 9% of total production followed by Orissa (6%), West Bengal (6%), Maharashtra (5%), Madhya Pradesh (4%) and others (17%).

7 Figure 7: State wise contribution in chilli production Andhra Pradesh is the major chilli producing state in India. The major chilli growing districts in Andhra Pradesh are Guntur, Warangal, Khammam, Krishna and Prakasham. Guntur is the biggest potential region, contributing 30% of the total production of Andhra Pradesh, with an annual turnover of around Rs600 crore. The area and production of chilli in this area decides the price trend. International trade India has immense potential to export different types of chillies required by various markets around the world. It is the leader in exports, with 25% share in world trade, followed by China with 24% share in total global exports. Clearly, China is a serious competitor to India in the international markets, penetrating all major markets like Indonesia and the US Indian chilli exports are mainly influenced by domestic demand and uneven production which is interrupted by erratic monsoon, drought, and yield factor. From Figure 8, we observe that India s chilli exports are showing an increasing trend from the last decade on rising export demand coupled with short supply from other major producers, and the ban by the European Union on imports of chilli from Pakistan due to presence of aflatoxin in its produce. Pakistan s export share in global trade was grabbed by India that resulted in historic high exports from India in the last couple of years.

8 Figure 8: Exports of chilli from India Introduction of sampling and mandatory quality testing of chilli and chilli product consignments by the Spices Board before shipment for the presence of Sudan I IV and aflatoxin has boosted the confidence of overseas buyers and helped India s exports. The rise in production of chilli last year and availability of large exportable surplus in the country coupled with lower crop expectation in other major producing nations boosted India s export opportunities. India started exporting chilli in , with 8,364 tonnes valued at Rs176 crore. Since , India s export performance has been excellent, with higher international demand pushing exports to current levels. According to the Spices Board, the total export of chillies from India in touched a record high of 2.09 lakh tonnes, valued at crore, up 41.2%, against 1.48 lakh tonnes valued at 807 crore shipped last year. In , India exported 16.4% of its total chilli production. The export of chilli accounts for 48% in terms of quantity and 28% in terms of value of the total export of spices from India. Currently, India is the main source of red chilli in the international market. It exports in different forms like chilli powder, dried chilli, pickled chillies and chilli oleoresins. Chillies consumed in the food processing industry are known for its colour and pungency, whereas countries like the US, the UK, Germany and Sweden use chilli for manufacture of oleoresins and extracts on a large scale.

9 Figure 9: Country wise chilli exports from India In , total chilli exports in the first quarter (April June) rose 16.3% to 67,000 tonnes, compared with 57,625 tonnes last year due to strong demand from traditional buyers like Malaysia, Indonesia, Sri Lanka and Pakistan. Out of the total exports from India, Malaysia is the largest buyer of Indian chilli with a share of 29%, followed by other traditional buyers like Bangladesh (19%), Sri Lanka (15%), the US (9%), the UAE (8%), and others (19%). (Source: Spices Board) Chilli seasonal indices of arrivals and prices The Guntur spot market is the biggest chilli market in Asia and prices in this market are taken as the benchmark to determine export and domestic prices on a daily basis. These prices are greatly influenced by arrivals and on the extent of demand in the market. In major producing areas, arrivals start hitting the market in February and continue until May. Peak arrivals are seen in March with an average of 2 3 lakh bags on a daily basis. On the other hand, in Karnataka and Madhya Pradesh, arrivals hit the market one month in advance due to early sowing. Figure 10: Seasonal indices of arrivals and prices of chilli From Figure10, we can infer that chilli continues to arrive throughout the year into the markets on availability of cold storage infrastructure facilities within 2 km distance from the market. The common practice seen in Guntur is that as soon as the commodity arrives in the market after harvest, it is purchased by the traders at lower cost and kept in cold (Source: APMC Guntur)

10 Storages and released into the market as prices moves up in the off season when arrivals are about 20,000 30,000 bags per day. Dry chilli can be stored for two years without deterioration of quality. Chilli prices are seasonal in nature. In January, February and March, prices trade on the lower side due to arrival pressure in the markets. Slow down in arrivals followed stockiest and domestic demand, prices recover in April and May. The Guntur physical market is closed for one month from May to June due to peak summer season. On emergence of fresh export and domestic demand during September and October, prices gain support to reach its peak level. Thereafter, prices slowly recede on reports of production estimates. Chilli market recap As discussed earlier, the bull run in chilli prices started from the beginning of March 2008 on easing of arrivals from the harvested crop. The other major factor that provided strength to the bullish trend in the last six months was reports of a decline in production in the crop due to floods at harvesting time. This washed out the crop, and ultimately resulted in shortage of best quality stock in the market. Moreover, production estimates have come down to 12.5 lakh tonnes from the earlier projected figure of 14 lakh tonnes. In additon, the emergence of export demand from traditional buyers like Malaysia, Bangladesh and Sri Lanka prompted prices to move higher. In the spot market, prices strengthened to 5200 levels per quintal, and in line with this, the futures market also scaled up to 5820 levels in July from lower levels of Prices, after testing Figure11: Chilli price movement in spot and futures 5820 levels, corrected to 5160 levels during the last one month due to profit booking on the recent rally followed by slowdown in demand from overseas and domestic buyers. However, prices recovered slightly and, at present, futures prices are howering around 5400 levels per quintal.

11 Factors to watch out According to trade sources, chilli production has declined by 10.71% to 12.5 lakh tonnes in against the primary estimates of 14 lakh tonnes. Floods at harvesting time in February and March 2008 in the coastal belt of Andhra Pradesh led to huge crop losses. Currently, the available stock in the market after meeting the domestic and export demand is estimated at about 3.89 lakh tonnes. Chilli exports from India accounted for 2, 09,000 MT in (April 2007 to March 2008), an increase of 41.21% compared to last year s 1,48,000 MT. India has exported 80,500 MT of chilli in Apr July 2008 compared to 75,525 MT during the same period of Strong export demand due to lower crop in other major producing countries led to sharp gain in prices in the last 4 6 months. Sowing operation has been in progress and it may continue for another one month. Fresh crop arrivals are seen from January 2009 onwards. Significant increase in area under chilli cultivation may not be seen as most farmers incurred huge losses from the crop, and are not yet recovered from these losses. For the near term, demand from spices industries, retail segment, and emergence of export demand may support prices to trade on the higher side. Trading strategy: Currently, on NCDEX December contract Chilli futures are trading at Rs per quintal Downward movement is expected to continue further in medium term with next potential support area at 4500 levels. Lack luster demand, favourable weather condition in major growing areas are supporting the bearish view in short term With clarity in acreage and production estimates, prices may fall towards 4500 levels by end of this year Any rise towards levels can be taken as selling opportunity for a target of levels This report will be further updated based on sowing data and Weather conditions at end of this year Major support seen at 5100 levels on break of this, prices may test levels and 3800 levels Resistance are seen at 5800,6000 levels

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