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PARTICULARS Acknowledgement Executive summary Need for the study About commodity and commodity market Commodity derivatives Commodity trading Indian spices pepper Cumin seed chilli conclusion Reference

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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 everincreasing 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. 2. 3. 4. Multi Commodity Exchange (MCX) located at Mumbai National Commodity and Derivatives Exchange Ltd (NCDEX) located at Mumbai. National Board of Trade (NBOT) located at Indore 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)

New York Mercantile Exchange in its current form was created in 1994 by the merger of the former New York Mercantile Exchange and the Commodity Exchange of New York (COMEX). Together they represent one of world's largest exchange for precious metals and energy.

Tokyo Commodity Exchange (TOCOM)

Tokyo Commodity Exchange (TOCOM) is the largest exchange in Japan and second largest commodity exchange in the world for futures and options. Crude oil, gasoline, kerosene, gas oil, gold, silver, aluminium, platinum and rubber are the commodities that are actively traded.

Shanghai Futures Exchange

Shanghai Futures Exchange is one of biggest exchange for copper price determination. It also deals in aluminium, fuel oil, rubber, etc.

Sydney Futures Exchange

Sydney Futures Exchange deals in interest rates, equities, currencies and commodities. Wool and cattle futures is its specialty.

London International Financial Futures and Options Exchange (LIFFE)

London International Financial Futures and Options Exchange (LIFFE) also know as Euro next. Among actively commodities trades are cocoa, robusta coffee, corn, potato, rapeseed, sugar and wheat. Robusta coffee prices are determined through this exchange.

National Multi-Commodity Exchange in India (NMCE)

National Multi-Commodity Exchange in India (NMCE) was first to get national status in India. It is promoted by commodity relevant institutions like CWC (Central Warehousing Corporation), NAFED (National Agricultural Co-operative Marketing Federation of India, PNB and other.

National Commodity and Derivatives Exchange (NCDEX)

National Commodity and Derivatives Exchange (NCDEX). Pulses like chana,urad,tur are most actively traded here. Other commodities like jeera, pepper, mentha oil , guar and wheat,etc are actively traded.

Multi Commodity Exchange of India Limited (MCX).

Multi Commodity Exchange of India Limited (MCX). Formed in Nov 10, 2003.The exchange has developed its reputation for trading in bullion, crude oil and mentha oil.

Dubai Gold & Commodity Exchange (DGCX)

Dubai Gold & Commodity Exchange (DGCX) was formed in Dubai. It is developed jointly by Dubai government as well as MCX and FTIL. At the moment it is trading in Gold but plans to trade in others also. Dubai has an advantage of its location of serving all time zones.

Dubai Mercantile Exchange (DME)

Dubai Mercantile Exchange (DME) is a joint venture between Dubai holding and the New York Mercantile Exchange (NYMEX). It is still to be launched and is likely to be an active exchange for oil futures as it is in the centre of oil producing nations.

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 Exchange

Registered commodity exchanges in India Product traded Gur Sunflower oil Cotton (Seed and oil) Safflower (Seed, oil and oil cake) Groundnut (Nut and oil) Castor oil, Castor seed Sesamum (Oil and oilcake) Rice bran, rice bran oil and oilcake Crude palm oil Groundnut oil Castor seed Rapeseed/ Mustardseed oil and cake Gur Turmeric Cottonseed, Castorseed Gur Pepper Domestic-MG1 Gur, Rapeseed/ Mustardseed Sugar Grade-M Rapeseed/ Mustard seed/ Oil/ Cake Soybean/ Meal/ Oil, Crude Palm Oil Gur, Rapeseed/ Mustardseed Indian Cotton Gur, Rapeseed/Mustardseed Hessian, Sacking Copra, Coconut oil & Copra cake Coffee Gur, RBD Pamolein, Groundnut Oil, Sunflower Oil, Rapeseed/Mustardseed, Rapeseed/Mustardseed Oil, Rapeseed/Mustardseed oilCake, Soy bean, Soy Oil, Copra, CottonSeed, Safflower, Groundnut, Sugar, Sacking, Coffee-Robusta Cherry AB, Coconut oil,

Bhatinda Om & Oil Exchange Ltd. The Bombay Commodity Exchange Ltd.

The Rajkot Seeds oil & Bullion Merchants Association The Kanpur Commodity Exchange Ltd. The Meerut Agro Commodities Exchange Co. Ltd. The Spices and Oilseeds Exchange Ltd. Sangli Ahmedabad Commodities Exchange Ltd. Vijay Beopar Chamber Ltd., Muzaffarnagar India Pepper & Spice Trade Association, Kochi Rajdhani Oils and Oilseeds Exchange Ltd., Delhi National Board of Trade, Indore

The Chamber of Commerce, Hapur The East India Cotton Association, Mumbai The Central India Commercial Exchange Ltd., Gwaliar The East India Jute & Hessian Exchange Ltd., Kolkata First Commodity Exchange of India Ltd., Kochi The Coffee Futures Exchange India Ltd., Bangalore National Multi Commodity Exchange of India Limited, Ahmedabad

National Commodity & Derivatives Exchange Limited

Bikaner Commodity Exchange Ltd.,Bikaner Esugarindia Limited

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 Soy Bean, Refined Soy Oil Mustard Seed Expeller 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-320Kollam, Cotton Seed Oilcake Akola, Cotton Long Kadi, Arabica Coffee - Hassan (New), Chilli (Paala) LCA 334, Robusta Coffee Kushalnagar (New) Guarseed, Gram Sugar Grade M, Sugar Grade S 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,

Multi Commodity Exchange of India Ltd.

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 NCDEX currently facilitates trading of 57 centres. commodities.

MULTI COMMODITY EXCHANGE OF INDIA (MCX)

Everything 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 you need to know about our company, its people and

efficiency of price discovery. Being a nation-wide commodity exchange having stateof-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 NMCEs 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 Rs.30 lakh. 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

Fees & Deposits

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

No.

Details

Amount (Rupees in Lacs) 1.00 1.00

1 Admission Fees (Non refundable) 2 Contribution towards the Trade Guarantee Fund of the Exchange (Refundable only after the minimum lock in period) * 3 Initial Base Capital (Refundable only after the minimum lock in period) * 4 Additional Base Capital (Refundable only after the minimum lock in period) *

1.00 10.00 0.20

5 Annual Subscription charges Total Amount * Minimum "Lock in" Period of 3 years.

13.20

FUTURE TRADING HIERARCHY

Ministry of Consumer Affairs, Food and Public Distribution(Government of India)

Forward markets Commission(FMC)

National Multi-Commodity Exchange (NMCE)

Trading Cum Clearing Members (TCM)

Institutional Clearing Members (ICMs)

Trading Members (TM)

Trader

Client / Non Registered Member

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 members 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 days 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 sellers option between 12th to 15th of the delivery month. The payin/pay-out for delivery is by way of debit to the buyer and credit to the seller to the relevant Clearing Members 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 Members 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

Seller has to tender Warehouse Receipt and make them available to the exchange

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

Pa yy- in ou Tr Po t a n si sf tio er n ta ke Pl s ac e

Pa

Exch ange gives notic e of Deliv ery with detail s of lots to be deliv ered
Matching of Open Positions in Between Buyers & Sellers The Buyer has to keep the money ready

On T+3 day

5 days prior to the end of the contract month. On Delivery day

Open Short Position Sellers

Open Long Position Buyers

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. monitoring undertaking, prices; increasing or In regard to cardamom, the Board provides consumption; scientific, improving and marketing; economic financial and other assistance for cultivation and processing of cardamom; domestic assisting encouraging technological

research; improving quality. spices etc.

Spices Board also implements programmes for

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

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
ANDHRA PRADESH ARUNACHAL PRADESH ASSAM HARYANA BIHAR GUJARAT HIMACHAL PRADESH JAMMU & KASHMIR KARNATAKA KERALA MADHYA PRADESH MAHARASHTRA MEGHALAYA MIZORAM ORISSA PUNJAB

Product
Chilly ,Ginger , Mustard Turmeric

Ginger ,Tejpat Turmeric

Aniseed , Turmeric Garlic Ajovan,Garlic, Mustard,Turmeric Chilly,Cumin,Dill Seed,Fennel,Fenugreek,Garlic

Ginger

Ajovan,Saffron Cardamom (Small),Chilly,Clove,Garlic,Ginger ,Kokam,Nutmeg & Mace,Pepper,Turmeric,Vanilla Cardamom (Small),Cinnamon & Cassia,Clove,Ginger ,Nutmeg & Mace,Pepper,Turmeric,Vanilla Chilly,Garlic,Ginger Chilly,Garlic,Pomegranate Seed,Turmeric Ginger ,Turmeric Ginger Chilly,Garlic,Ginger ,Turmeric Aniseed,Celery

RAJASTHAN SIKKIM

Chilly,Cumin,Coriander,Dill Seed,Fennel,Fenugreek,Garlic Cardamom (Large),Ginger ,Tejpat Cardamom (Small),Chilly,Cinnamon & Cassia,Clove,Ginger ,Herbal & Exotic Spices,Nutmeg & Mace,Pepper,Pomegranate Seed,Turmeric,Vanilla Turmeric Aniseed,Celery,Chilly,Coriander,Cumin,Fennel, Fenugreek,Garlic, Mustard,Turmeric Cardamon (Large),Chilly,Ginger ,Turmeric

TAMIL NADU

TRIPURA UTTAR PRADESH WEST BENGAL

The world trade in spices during 2004-05 is estimated at 7.50 lakh tonnes of which Indias 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 Family name Commercial part Piper nigrum L. Piperaceae 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 Family name Commercial part Cuminum cyminum L. Apiaceae 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 Family name Commercial part

Capsicum annum L., Solanaceae

Capsicum frutescens L.

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 Family name Commercial part Curcuma longa L. Zingiberaceae 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

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 Karnataka Tamil Andamans Total 45,000 Nadu 75 42,900 1,525 500

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)

18000 16000 14000 12000 10000 8000 6000 4000 2000 0
ar c A h pr M il a Ju y n J e S Au uly ep g te us O mb t N cto er o b D vem er ec em be Ja be r Fe nu r br a ry u M ar y ar c A h pr il M

Price (Rs.)

Monthly Average price

Month

ESTIMATION PARTICULARS
CROP 2006-07 CARRY OVER STOCKS TOTAL ANTICIPATED IMPORTS BALANCE EXPECTED EXPORTS DOMESTIC CONSUMPTION REMAINING BALANCE

QUANTITY
37/42000 TONNES 20000 TONNES 62000 TONNES 15000 TONNES 77000 TONNES 12900 TONNES 50000 TONNES 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 OctoberNovember 4 Months FebruaryMarch Gujarat, Rajasthan Major producing countries India, Turkey, Iran, Syria Major importing countries 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. ii. iii. iv. Sabor Khati Patan Kutchh 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. Indias 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

600000 500000 Area(Hects) 400000 300000 200000 100000 0 1997- 1998- 1999- 2000- 200198 99 00 01 02 2002- 2003- 2004- 2005- 200603 04 05 06 07(E)

Year 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

250000 Production 200000 150000 100000 50000 0 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Year Production (tonns) 200607(E)

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 200506. 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

160000 140000 120000 100000 80000 60000 40000 20000 0
19 97 19 9 8 98 19 9 9 99 20 0 0 00 20 0 1 01 20 0 2 02 20 0 3 03 20 0 4 04 20 0 5 05 -0 6

PRODUCTION(MT)

RAJSTHAN (MT) GUJARAT (MT)

(YEARS)
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 years 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

VALUES (Rs. Cr) QTANTITY(MT) 20,000 15,000 10,000 5,000 0
19 79 19 -8 0 97 19 -9 8 98 20 -9 9 00 20 -0 1 01 20 -0 2 02 20 -0 3 04 20 -0 5 05 -0 6

200 150 100 50 0

Quantity(MT) Value (Rs. Cr)

(YEARS)

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
CROP 2006-07 CARRY OVER STOCKS TOTAL ANTICIPATED IMPORTS BALANCE EXPECTED EXPORTS DOMESTIC CONSUMPTION REMAINING BALANCE

QUANTITY
35/40000 TONNES 40000 TONNES 80000 TONNES NIL 80000 TONNES

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. ii. iii.

The prices display high volatility due to its seasonal nature and widespread demand within and outside the country. Weather at the production centers, pests and diseases have an influence on the production of spices. 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 illdrained 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 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.

Area & Production Of Chilli In India

The
12 10 8 Area 6 4 2 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 (E) 12 Production 10 8 6 4 2 0

Year Area (lakh hectares) Production (lakh MT)

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

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.

INDIAS 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
Indias 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

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

QUANTITY(MT) VALUE(Rs. Cr) 150000 100000 50000 0 2000-012001-022002-032003-042004-052005-06 200607(E) (YEARS) Quantity(MT) Value (Rs. Cr) 600 500 400 300 200 100 0

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 Indias 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
CROP 2006-07 CARRY OVER STOCKS TOTAL ANTICIPATED IMPORTS BALANCE EXPECTED EXPORTS DOMESTIC CONSUMPTION REMAINING BALANCE

QUANTITY
10.3 LAKH MT NIL 10.3 LAKH MT NIL

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% 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. -30%.