For spice trade, demonetisation remains a bitter-sweet experience

Is demonetisation and the consequent sucking out of funds from the trade responsible for the drop in the prices of some spices?

The answer is yes, in part. According to one section of the trade, demonetisation did affect operations, but another set feels the transparency brought about by the digitisation has helped the trade.

Several traders/dealers of spices in Kerala, Karnataka and Tamil Nadu, who did not want to be identified, told

BusinessLine that for the past several decades, inter-State and local trading in cardamom, pepper and cloves has been taking place without documentation, mainly to avoid taxes. Demonetisationand the tightening that followed have forced many such operators out of the market.

This phenomenon has squeezed demand leading to a fall in prices. But, overall, the scenario remains,the same for almost all spices, be it pepper, cloves or cardamom.

Cash crunch

For instance, clove prices fell from ₹800 a kg to ₹500 in the domestic market due to slack demand.

“Sales dropped due to low consumption as big stockists were out of trade after demonetisation. Cash crunch hit cloves trade,” says Dhirish Momaya, a Bengaluru-based dealer.

Prices fall

According to Muthu Subramanian, Secretary, Maramalai Planters Association, “in Nagarcoil, the major trading hub, prices have dropped as the dealers who used to hold large stocks, are now making need-based buying due to the liquidity crunch”.

Initially, for few a months, there was the problem of liquidity. “But, at present, there is absolutely no problem. The sellers of pepper/cardamom are paid in cash up to ₹2 lakh. The payment, in fact, is made as per the requirement of the seller/grower, in full or in different bills. Transactions with the main dealers in Kochi/other centres are only through bank transfer,” said PA Thomas, a primary market dealer/farmer.

According to Hemant Kishor, a pepper dealer/exporter, following demonetisation and introduction of GST, trading has become more transparent, and there is no incentive to evade tax. “The cost of paying the tax is lower than evading it,” he said.

Neelesh Shah, a major dealer in nutmeg and mace, said the current slow down in demand is because many of the participants are not investing in commodities of late, as they “are not able to do it the way they were doing before demonetisation and introduction of the GST. It has become more and more transparent and hence would take some time for them to get on track”.

For small and medium pepper growers in rural areas, payment by cheque does not seem to be feasible. The volume of the produce used to be small. Hence, payment by cash is the viable solution and is still in practice.

However, for large amounts, payment is by cheque/electronic transfer, said Kishor, who buys pepper from rural areas in Idukki and Wayanad.

Imports

Besides, the availability of cheap pepper in neighbouring countries at a time when there is shortage in India, has resulted in large-scale imports through legal and illegal channels.

Domestic consumption is estimated at around 60,000 tonnes. This factor is also responsible for the fall in pepper prices, he added.