CChhiillllii SSeeaassoonnaall

RReeppoorrtt

21 Jan 2008

Chilli Seasonal Report

Introduction

In India, Chilli is cultivated as a commercial spice crop. India ranks first in the world in

terms of production, consumption and exports. Chilli is the most widely used universal spice

and named as wonder spice. Red Chillies are integral and most important ingredient in

many different cuisines around the world. It belongs to the genus capsicum, under the

solanaceae family. India is the only country in the world to have different varieties with rich

quality factors like colour and pungency.

Origin

Chilli origin considered from the warm northern regions of South America, during the 16th

century, Portuguese have introduced the chilli to India.

Indian chilli is considered to be world famous for two important commercial qualities of its

colour and pungency levels. Some varieties are famous for red colour because of the pigment

capsanthin and others are known for biting pungency attributed by capsaicin. The other

quality parameters in Chilli are length, width and skin thickness.

Seasonality

Chilli is a seasonal and annually grown cash crop. Its sowing starts after monsoon showers

commencement i.e., from first week of August and extends till October. Growth period is

around 4-5 months depending upon varities cultivated and harvesting commences from the

month of December. Arrvials start hitting the market from February and continues till April.

Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July

Sowing Growth period Arrivals Marketing period

21 Jan 2008

Major varities grown in India

There are about 70 varieties of Chillies grown in India and major varieties are Guntur

Sannam, Tejaswini, Roshini, LC 334, Byadgi, Wonder Hot and Jwala etc.

Domestic Scenario

India is the largest producer and consumer of chilli among other major producers in the

world. India contributes about 25% to total world production and remained in first position

in terms of international trade by exporting 20% from its total production. India had

produced about 10.64 lakh tonnes with an area of 6.5 lakh hectares under chilli cultivation

during 2005-06. During 2007, prices have touched a historical high of Rs.7000 per quintal on

decline in production by 14.37% compared previous year because of heavy rainfall and

floods in major producing regions of south India and damaged the crop.

Farmers have increased the acerage under chilli cultivation during last two years on

attractive price realization per quintal and rising export demand. In 2006-07, production,

according to trade sources, is 11.5 lakh tonnes, where as in 2007-08 production is anticipated

to touch 13 lakh tonnes. India, being a largest producer, it is also the largest consumer.

Domestic consumption accounts to around 7-8 lakh tonnes per annum.

Balance sheet for the year 2006-07

Lakh tonnes

Production 11.5

Domestic consumption 8.1

exports 1.9

Carry forward stocks 1.5

Production in 2007-08 expected 13

Production trend

India had bumper crop from 1998 to 2001, with an average yield of 1174.25 kg/ha. Better

crop management practices and higher yield levels led to a fall in the prices and it influenced

the farmers to shift their production to other cash crops like cotton, sugarcane etc. and

witnessing a decline in area and production in subsequent years .

As depicted in the chart below after a bumper crop of nearly 12 lakh tonnes in the year

2003-04 once again production and acerage has come down due to damage of crop by

floods in major producing regions of South India paricularly in the year 2005-06.

Area and Production of chilli in India

3

6

9

12

15

1970-71

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

Area and Production

Area ( lakh Hect.) Production (lakh Tonne)

(Source: Spice Board, India )

In the year 2006, spot prices were quoted in the range of 5000-7000 levels per quintal on deficit

supply in the country. This higher prices, introduction of high yielding varities and rising export

demand attracted the farmers to increase area under chilli cultivation in last two years. According

to trade sources, in the year 2007-08, expected output is around 13 lakh tonnes.

Chilli Area,Production & Yield in India during 1997-2006

6.0

8.0

10.0

12.0

14.0

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Area & Production

800

1200

1600

2000

Yield

Area( Lakh ha) Production (Lakh tonnes) yield (Kg/ha)

(Source: Spice Board, India )

In India, Chillies are grown in almost all the state through out the country. Andhra Pradesh

is the largest producer of Chilli in India and contributes about 26% to the total area under

Chilli, followed by Maharashtra (15%), Karnataka (11%), Orissa (11%), Madhya Pradesh

(7%) and other states contributing nearly 22% to the total area under Chilli.

state wise % share in area under chilli cultivattion during

2005-06

Andhra Pradesh

26%

others

22%

West Bengal

8%

Orrisa

11%

Karnataka

11%

Maharastra

15%

Madhya

Pradesh

7%

(Source: Spice Board, India )

The production of Chilli in India is dominated by Andhra Pradesh which bestows 53% to the

total production. Karnataka is the second largest producer contributing 9% to the total production

followed by Orissa (6%), ,West Bengal(6%),Maharashtra (5%), Madhya Pradesh (4%)and

others about 17% during 2005-06.

State wise % share in chilli production in 2005-06

Orrisa

6%

Maharastra

5% Madhya Pradesh

4%

Karnataka

9%

West Bengal

6%

Andhra Pradesh

53%

others

17%

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 potential region, 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

2008 is expected to be higher by 10-15% in Andhra Pradesh and 50% higher in Madhya

Pradesh. The rise in production in major producing states due to favourable weather conditions

and high yield may create glut in the market.

World Scenario

Global output of chilli is estimated to be around 40 lakh tonnes per year. Lion’s share is

taken by India with the production of 11.5 lakh tonnes that accounts to 26% in global

production, followed by China, Pakistan, Morocco, Mexico and Turkey. India has immense

potential to export different types of chillies required by various markets around the world.

India is the leader in terms of exports in the world trade followed by China with 25 and 24

percent share in total global exports, respectively and it is a serious competitor in the

International market for India. It is penetrating into all the major markets like Indonesia and

USA like India.

Chilli Exports from India

0.20

0.60

1.00

1.40

1.80

2.20

1998-99 2000-01 2002-03 2004-05* 2006-07

quantity in lakh tonnes

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

value in crores

quantitty Value

(Source: Spice Board, India )

The above graph is witnessing a huge fluctuations in Indian exports mainly due to increased

domestic demand and uneven production interrupted by erratic monsoon, drought and

yield factor. We can observe from the above graph that India’s chilli exports are currently in

bull stage on rising export demand coupled with short supply from other major origins and

the ban by the European Union on imports of chilli from Pakistan due to presence of

aflatoxin in its produce and fungus attack. Pakisthan’s share in exports also grabed by India

that resulted in recent rise in exports. Introduction of sampling in chilli and chilli products

consignments by the spice board for the presence of Sudan I - IV and aflatoxin before

shipments has boosted the confidence of the overseas buyers .

The rise in production of chilli last year and availability of large exportable surplus in the

country coupled with lower crop expectation in other major producing boosted the export

opportunities for India. According to spice board estimates, the export may touch an all-

time high of 1.9 lakh tonnes in 2007-08. India has started exporting Chilli in 1960-61 with

8,364 tonnes valued at Rs176 crore. From 2001-02 India’s export performance was excellent,

higher international demand push the exports to present levels.

According to spice board, the total export of chillies from India in 2007-08 is estimated to

touch a record high of 1.9 lakh tonnes, up by 28.3% against 1.48 lakh tonnes valued at 807

crores shipped last year. Current year, india exported 15% of its production. The export of

Chilli accounts for 48% in terms of quantity and 28% in terms of value of the total export of

spices from India. Presently India is the main source of Red Chilli for international market.

India exports in different forms like chilli powder, dried chilli, pickled chillies and chilli

oleoresins. Chillies 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 uses chilli for manufacture of oleoresins and extracts on large scale.

Country wise exports from India during 2006-07

Bangladesh

19%

USA

9%

SriLanka

15%

UAE

8%

others

19%

China

1%Malaysia

29%

(Source: Spice Board, India )

Malaysia is the largest buyer of Indian chilli with the share of 29% in total indian exports

followed by other traditional buyers like Bangladesh (19%), Sri Lanka (15%) and USA (9%),

UAE (8%) and others (19%). China, being a major producer, imported over 900 tonnes of

chillies from India during 2006-07. In terms of quantity, Malaysia imported 43,625 tonnes of

chillies in 2006-07 compared to 26,804 tonnes in 2005-06. Bangladesh at 28,425 tonnes

compared to 671 tonnes in 2005-06. Other major buyers like Sri Lanka has imported 21,822

tonnes, USA 13,058 tonnes and UAE 11,819 tonnes of chilles in 2006-07.

Factors influencing prices of Chilli

� Arrivals in the market

� Historical price movement

� Climatic conditions

� Shifting towards alternate crops

� Carry forward stocks

� Global and domestic Supply demand dynamics

� Export and Import

Arrival pattern

Guntur spot market is the biggest chilli market in the world. Guntur chilli price taken as

standard price for deciding export price. These prices are greatly influenced by arrival of the

new crop. In major producing areas, arrivals start hittting the market in the month of

February and continue till May month. Peak arrival are seen in the month of March at

around 7-10 Lakh bags traded per day. The arrivals from Karnataka and Madhya Pradesh hit

during middle of February.

Month wise Arrival pattern in Chilli in Guntur

20000

95000

170000

245000

320000

395000

470000

545000

Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar

2004-05 2005-06 2006-07 2007-08

(Source: APMC Guntur )

From the above graph, we can infer that Chilli continues to arrive throughout the year into

the markets on availability of cold storage infrasturcture facilities in the access of 2 Km

distance from Market. The common practice seen in Guntur is as soon as the commodity

arrives in the market after harvest it is purchased by the traders at lower cost and keep the

stock in the cold storages and release into the market as prices moves up in off season. In

off season, arrivals can be seen around 20,000-30,000 bags. Dry Chilli can be stored for 2

years without deterioration of the quality.

Price Analysis

Chilli prices follows seasonal pattern like all other agri commodities. From the below graph

we can infer that March, April and May months witness lower prices due to heavy arrivals to

the markets and prices will be high in the month of June, July, December and January and till

middle of February because of lower availability of crop and off season. Market yard is

closed for 4 weeks in peak summer during this period farmers store their produce in nearby

cold storages.

During May to August prices of Chilli touches their peak levels because of 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 has to meet the demand.

Guntur chilli model prices

1600

2400

3200

4000

4800

5600

May June July Aug Sep Oct Nov Dec Jan Feb Mar

2004-05 2005-06 2006-07 2007-08

(Source: APMC Guntur )

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 modal prices were quoting at Rs. 3101 per quintal in

Guntur till December 2005. Over the years (in 2006) prices reached a historical high of

6500-7000 per quintal as a result of heavy export orders, increased domestic demand and

mismatch of supply demand dynamics. During that time unit value realisation has increased

from Rs.36 in 2005-06 to Rs.54 per kg. In 2007-08, prices traded in the range of 3000-3800

per quintal on increased supply in 2006-07 compared to last year whereas exported stock

traded at Rs. 5500 per quintal.

Price OutLook: (March ) Chilli

Chilli prices are expected come down in near term on following fundamental reasons:

� Increase of arrivals from fresh crop in near months may results in selling pressure in the

market

� High spot prices during first quarter of 2007 promted many farmers to cultivate chilli in

large scale

� Expectation of bumper crop i.e. 13 lakh tonnes ,which is higher by 15% compared to last

year of 11.5 lakh tonnes

� Ideal weather conditions for Chilli crop

� This year farmers are not showing interest to store in the cold storages, because they got

lower prices last year while storing the produce in cold storages.

Technical Update: Chilli- March- NCDEX

The March Contract Chilli prices in NCDEX have witnessed a lifetime high of 3930 (since

contract launched) and currently prices are reversing from its uptrend. Prices are likely to

trade weak in the short to medium term and the crucial supports can be seen at 3700 and

breach of the same may see prices to test 3630 and then 3550. If prices extend its downward

movement, we might see prices to correct further till 3440-3400 levels. However an initial

pullback can be expected in the near term and the resistance is seen at 3827 and then 3865

levels. Incase market breaches 3865 it is likely to move near the contracts high of 3930 levels.

Since the momentum indicators are signaling prices to trade weak in the medium term, 3860

could be a crucial resistance for it. MACD in the daily chart shows a crossover (downward),

signaling prices to remain on down trend.

Our Preference: Sell in the range of Rs. 3840-3900 targeting 3630, 3550 and only then 3500 with stop loss above 4050.

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