“It’s very good for health, it’s used in cooking, in cosmetics and it’s medicinal,” said Shah, owner of P. Amratlal & Sons, a trader at Mumbai’s wholesale Vashi market.
Falling stockpiles and speculation have also pushed up the price of the curry ingredient 64 percent this year on the National Commodity & Derivatives Exchange, three times the gain of India’s benchmark stock index, boosting food costs in a country where 7 out of 10 people live on less than $2 a day.
Reserve Bank Governor Duvvuri Subbarao raised interest rates six times this year and said on Nov. 3 inflation is still above the bank’s comfort zone. One reason is the spices Indians use every day. Pepper futures have risen 51 percent on the National Commodity & Derivatives Exchangethis year, compared with a 20 percent jump in the Bombay Stock Exchange Sensitive Index, the best performer among the world’s 10 biggest equity benchmarks.
“Spices, especially cardamom, pepper and turmeric, are contributing to overall inflation,” saidHarish Galipelli, vice president at Kochi-based JRG Wealth Management Ltd., which advises traders. “The government is definitely under pressure to tackle food inflation.”
India controls 42 percent of the $2.8 billion world spice trade, and consumes 90 percent of what it grows. The price gains add to rising global food costs as increasing wealth and growing populations in countries including China and India boosted demand and floods in Canada, Pakistan and China and droughts in Europe killed crops. The United Nations Food and Agriculture World Food Price Index rose to a two-year high in October.
Vital Spices
Finance Minister Pranab Mukherjee said on Oct. 26 that higher food costs were the biggest contributors to inflation. India’s benchmark wholesale-price index rose 8.6 percent in September from a year earlier after an 8.5 percent gain in August, according to the commerce ministry. The central bank raised benchmark interest rates to 6.25 percent on Nov. 2.
“Spices are vital for Indian cooking, but now people’s purchasing power is down so people aren’t going out to eat,” said Mahesh Parekh, owner of Mumbai-based spice retailer Shamaldas Jivandas & Co. “The family that used to make four dishes for a meal, now makes two.”
Record prices of wheat, corn, rice, oats, soybeans, animal feed and cooking oil fueled civil unrest across the globe in 2008, and prompted countries including India to restrict trade to conserve supplies.
“My customers get angry at me, as if I have control over the prices,” said Namdev Jagannath, owner of Namdev Jagannath Sopariwala, a spice retailer started half a century ago by his father in Mumbai. “We have to pass on the costs.”
Price Speculation
Turmeric’s jump to a record 15,905 rupees per 100 kilograms on May 6 has attracted speculators. Average daily turnover by value of spices futures on the Goldman Sachs Group Inc.-backed National Commodity & Derivatives Exchange, India’s biggest bourse for agricultural commodities, doubled in September to 6.64 billion rupees, from 3.31 billion rupees a year earlier, said Tanushree Mazumdar, senior economist at the exchange. Pepper on the exchange touched a record 22,249 rupees per 100 kilograms on Nov. 9 and was at 21,551 rupees yesterday. Turmeric was at 12,160 rupees.
“There’s a lot of speculation,” said Prakash Namboodiri, general manager, AB Mauri India Pvt., a unit of Associated British Foods Plc. “A person who has got a lot of money can sway the markets and if they’re smart, they can make a lot of money trading in spices.”
Spice Sacks
Much of India’s physical spice trade takes place in wholesale markets like Vashi, 22 miles (35 kilometers) north- east of Mumbai’s business district. Aisles of shops display cardamom pods, cinnamon bark, tamarind and open sacks of deep- red chilies under the glare of naked electric bulbs. Telephones ring endlessly and electric fans waft the warm air.
Inventories of turmeric in India, which produces as much as 94 percent of world supply, may fall this year to a record low as production declines for the fourth straight year, according to Mumbai-based broker Kotak Commodity Services Ltd. Prices are heading for their fourth straight annual advance. Pepper has gained for three of the past four years.
Demand for turmeric rose an average 2 percent a year in the past seven years, Kotak said. Pepper stockpiles in India are expected to slump 62 percent in 2009-2010 from a year earlier to an all-time low, it said.
While India consumes most of its spices, exports are rising. Shipments from April to August jumped 25 percent in value to $565 million and 13 percent by volume, according to the Spices Board. Overseas sales may reach $10 billion by 2025, it predicts.
“It’s basically the short supply and increased demand,” said V.J. Kurian, chairman of Spices Board India.
Fast Food
Changing food habits and demand for ready-to-eat and fast- food in Europe and the U.S. is helping drive prices, said Shikha Mittal, analyst at Hyderabad-based brokerage Karvy Comtrade Ltd.
“In 40 years we have basically tripled the use of spices in the U.S. and those kinds of trends are also taking place in other countries around the world, particularly in Europe,” said Al Goetze, chief spice buyer with Sparks, Maryland-based McCormick & Co. the world’s largest processor of spices. “Consumers today are interested in more flavorful foods.”
Pepper rallied as production falls in Vietnam, said Nalini Rao, a research analyst at Angel Commodities Pvt. in Mumbai. Exports from Vietnam, the world’s biggest pepper producer, will drop 26 percent this year from a record, the Vietnam Pepper Association forecast in January.
Hoarding Pepper
Concern over global crop supplies spurred some Indian traders to hoard pepper, said Galipelli at JRG Wealth Management.
“We are experiencing a lot of volatility in the markets,” said Goetze. “Black pepper is really getting revved up because the supply is barely surpassing demand.”
Goetze said the jump in turmeric prices may encourage more farmers to plant the crop next year. Pepper is harder to balance with increased production because new plants take 3 or 4 years to produce a crop, he said.
For Shah, the turmeric trader, the long-term equation is based on demand. India’s population may rise to 1.47 billion by 2030, from 1.16 billion in 2008, New York-based management consultant McKinsey & Co. said in an April report.
“As the population grows year-on-year, demand goes up,” Shah said. “Inflation is up because the prices of essentials like grains and spices are up.”
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