Despite low production, chilli prices have not recovered much in the past few months. Prices may remain within a range till May as the arrival season is on. Chilli prices were trading around Rs 18,000 per quintal and Rs 19,000 per quintal in 2016. Higher price realisation made farmers grow chilli more and last year the production went up to 1.8 million tonnes against 1.628 million tonnes in the previous year.
Increased production saw prices falling in 2017. By March 2017 prices had fallen by 50 per cent compared with 2016. From Rs 9,400 per quintal in March, prices fell to Rs 7,000 per quintal in May. By then, prices had fallen more than 60 per cent, said Veeresh Hiremath, commodity research head, Karvy Comtrade.
Lower prices made farmers shift to crops like cotton in the last sowing season. The area under cultivation was around 40 per cent lower this time. In Andhra Pradesh, the largest chilli producing state, the acreage shrunk from 204,000 hectares in the previous crop season to 102,000 hectares this season and that was a 50 per cent decline in acreage.
Usually the productivity also drops in such cases, as the farmers will not have enough money to take care of the plants well. “We expect that the chilli crop this year will be at least 25 per cent smaller than last year,” said Hiremath.
Once reports about smaller crop started coming in, prices started recovering. There was some recovery in the second half of last year. But still by January 2018 prices had only climbed up to Rs 8,850 per quintal, which was still much lower than 2016.
By then, the arrivals of the new crop started. During the peak arrival time in February, the Guntur market in Andhra Pradesh was witnessing good arrivals of 3-4 lakh bags per week. Anticipating lower production, traders and stockists had started procuring chilli from the market and stocking it up.
The arrivals once again weighed down the prices. From Rs 8,850 per quintal in January, prices have corrected to Rs 8,580 per quintal. Usually, export markets leverage a price fall in the commodity and buy them in large quantities. Due to higher production and lower prices last year, exports had gone up to 235,000 tonnes against 165,000 tonnes in the previous financial year. However, this time the market does not expect any major off take of chilli.
“First of all, the production this year is low and hence we won’t be able to supply much to the export markets. Further, some of the markets have reported high pesticide levels in Indian chilli,” said Hiremath.
Pesticide content has been an area of worry for Indian chilli, especially when exported to markets like the US and Europe, where the price realisation is higher. In January this year too, the European Union added Indian chilli in the high-risk category for the pesticide residue in them.
“Lower demand from the export markets and continuing arrivals are expected to keep chilli prices under pressure for the next two months. Prices may remain within a range of Rs 8,500 per quintal and Rs 9,000 per quintal,” said Hiremath.