Traders lobby for farm grade pepper in futures basket

The controversy over the grade of black pepper used in futures trading has taken a new turn, with strong demand to include the farm grade pepper also in futures trading now emanating.

MG-1 (Malabar-garbled pepper) is the only grade used in future contracts. Indian black pepper is well known abroad as MG-1 and importing nations prefer to buy only this grade from India. So, when India Pepper and Spice Trade Association (IPSTA) had started future contracts in black pepper over 50 years ago, MG-1 was the only acclaimed grade.

A few years ago, when NMCE, Ncdex and MCX started pepper futures, they endorsed the same grade in trading. But now a section of exporters and traders argue that MG-1 is not so relevant now in the changed global pepper trading scenario where India is no longer an aggressive exporter of the product.

They allege there is a lot of malpractice in the process of determining the quality of pepper stocked in warehouses.

M C Abdul Rahman of Kalpetta, a pepper dealer, said the average appreciation in pepper futures trading is about 36 per cent and a major part of the stock is not MG-1, though it is claimed so.

There are reports of foul play submitting or accepting samples of the stock. An city exporter said of the 11,500 tonne stock in the warehouses of two major exchanges, more than half is inferior grade but is stocked under the MG-1 tag.

MG-1 grade is not popular in the domestic market because it involves an additional cost of Rs 3.50 a kg to convert the farm grade pepper to MG-1.

K M Kunjumohamed, another dealer, said specific parameters for the farm grade should be fixed and allowed in futures trading.

He said it is an open secret that there is malpractice in determining the quality of pepper offered in contract trading. One-kilogram sample submitted for testing would be of best quality, but the stock would be inferior.

An exporter felt that testing should be done by Export Inspection Agency as in the case of exports to the US and Canada.

But a leading Kottayam trader Jeemon Joseph said this is only a false propaganda targeted at ruining the fast-growing contract trading. He said the farm grade pepper should not be included in futures as the quality parameters cannot be specified on a common platform.

The farm grade itself has many variations, varying from place to place. Small traders of various trading centres across the state opined that as over 70 per cent of black pepper is being consumed internally and India is literally out of the exports market, some mechanism should be evolved to include pepper grade, which is widely consumed in India, in futures.

Cherian, a Wynad district dealer, said the farm grade pepper should also be included in contract trading as it might end malpractice in testing the grade. However, M L Parekh, president, IPSTA, claimed there are no such preactices.

He said the allegations raised against the quality of pepper are largely exaggerated. There were a few issues that could be addressed separately, he conceded.

He said IPSTA would raise the issue at a meeting to be convened by FMC on January 23. Parekh also said fixing a standard specification for farm grade is rather difficult, but the present system should be streamlined further to avoid allegations.

A city-based processor exporter said there is no point in arguing for MG-1 as Vietnam, the world's largest exporter of black pepper, is selling farm grade widely.

More than 85 per cent of its exports are not graded as ASTA, and sell farm grade only under the trade specification of 500 gm/ litre and 550 gm/ litre.

The US and EU had accepted these grades of pepper years back, and there should be changes in domestic trading, too, in line with global business trend, he added.