They are a red, hot favourite among culinary connoisseurs. The redder and hotter they are, the more is their demand. The lure of dried, red Indian chilli, especially like the Teja variety grown in Guntur in Andhra Pradesh, is reaping in the lucre for exporters. But be careful. They look quite tempting on the platter, but once they touch your palate, they send your sensations into a tizzy
Satyapal Menon | May 2015 Issue | The Dollar Business
The best way to resist temptation is to succumb to it. I did, as always, despite being conscious of the consequences. Before embarking on the tour to Guntur, I was cautioned to go slow on the food, especially dishes spiced with the world famous red hot chillies unique to the district. For starters, I did attempt to be selective, but the very first dollop I consumed had me in tears and sweating profusely, with hot sensation radiating from my ears. I also realised that while in Guntur, you are left with no choice but experience the inevitable. Nevertheless, this overwhelming taste is what has been bringing the world to the doorstep of this industrious and affluent district which has earned global reputation, not only for this red hot ingredient, but also cotton and tobacco.
Global beeline
Hindustan Aeronautics Ltd.’s Tejas might have propelled India into the supersonic age, but Guntur’s Teja variety of chillies has the potential to position you among the stars. Take a single bite into any dish spiced with this ingredient, and you find yourself in the midst of the galaxies. The taste is so irresistible, though, that you will, inevitably, end up savouring it to your heart’s content – precisely the reason why Teja is selling like hot cakes in the international market. In fact, just how irresistible Teja is can be gauged from the fact that even the dragon – China – has started knocking on the doors of Guntur to fuel the fire in its belly. This fact assumes even more significance, if seen along with the fact that China itself is one of the largest chilli exporters of the world! According to Kilari Venkata Rosaiah, Proprietor, KKR & Company, a major chilli exporter, there was a point in time when even Mexico, another major global chilli exporter, sought the Teja variety from India. “Guntur is the only location in the world, apart from Madhya Pradesh to a smaller extent, which grows this variety. That is why global buyers come to us,” Rosaiah told The Dollar Business, with more than a bit of pride.
World’s envy
In India, around ten different varieties of chilli are grown, each unique to a district or a state and different from the others in taste and pungency. The varieties comprise Dhani (grown in Mizoram and Manipur), Byadagi or Kaddi (Dharwar in Karnataka), Sannam S4 (Guntur in Andhra Pradesh; Warangal and Khammam in Telangana), Hindupur S7 (Hindupur in Andhra Pradesh), Jwala (Mehsana in Gujarat), Kanthari White (Kerala and some parts of Tamil Nadu), Kashmir Chilli (Jammu & Kashmir), and GT Sannam (Malkapur Chikli and Elachpur in Madhya Pradesh). These varieties have been classified according to not only their colour and intrinsic pungency, but also according to their capsaicin values. Guntur, however, accounts for a major chunk of the chilli production in the country, with Rohini, Teja, Kiran and Ankur varieties being the most popular among the 12 grades produced in the district. Guntur Sannam S17 or Teja, which has a 32.11 colour value and 0.226% of capsaicin, is considered the spiciest of all the varieties.
Evidence of this, apart from global demand, is the Chinese affinity for this variety. “The Chinese have set up a unit in Khammam, exclusively to extract oleo-resins from Teja, for their domestic consumption, which reflects their fascination for this variety,” Rosaiah said.
For more glory
India is the world’s biggest exporter of dry red chilli (currently traded under HS Code 09042110), with the value exports steadily rising over the last decade – from 1.01 lakh MT or $69.5 million in FY2005 to 1.57 lakh MT or $236.2 million in FY2014. At the same time, while Malaysia and Sri Lanka were the top two dry red chilli importers from India a decade back, today, they have been replaced by Thailand and Vietnam. And accounting for a lion’s share of this multi-million dollar worth of exports is Guntur, since it accounts for about 60% of the total chilli production in the country. If you thought this was great, the district’s chilli exports are all poised for a massive boost with the recent establishment of a Spice Park, which has been set up to provide common storage facilities for raw materials and finished products, apart from uninterrupted power supply.
Just how bullish the government is on the Spice Park can be gauged from the fact that it was inaugurated by none other than Minister of State for Commerce and Industry Nirmala Sitharaman. It’s worth noting that while inaugurating the park, the minister had said, “Farmers can bring raw chilli to the park, which has an installed capacity of 1 MT/hour, and get it cleaned, graded, powdered and packed.” Expressing her expectations from the district’s chillies, she had added, “At present, Guntur accounts for 60-65% of chilli exports from the country. But steps have to be taken to further improve the quality of the crop and increasing its yields.”
Real tears
Chilli economics is fairly simple. For a chilli farmer, the investment, excluding cost of land, is between Rs.1-1.1 lakh/acre. With a yield of 3-3.5 MT/acre and going rates in the range of Rs.50,000/MT and Rs.70,000/MT, the return on investment (RoI) can range anywhere between 50% and 100%. So, what is so unique about the Guntur chillies that draw global buyers in droves and provide such lucrative returns? High capsaicin, which gives the pungency, and capsanthin that provides the red colour – two of the most crucial aspects of chilli pricing.
Given these USPs, it’s rather inexplicable that inadequate and improper storage infrastructure in Guntur is hampering both production and preservation of chilli. A visit to the Spice Park, which was established with a lot of hype and hoopla, proved to be a revelation. It was deserted, with shutters down. And this was just three days after the inauguration! When The Dollar Business wanted to elicit clarification about all shutters being down on a working day, an official, over phone, said, “The entire staff is on leave and we would be able to meet you only on Monday.” This was a Thursday. If the district’s chillies didn’t get me in tears, such apathy surely did.
Dirty tricks
Despite India’s domination the global chilli market, lack of systematic and scientific pricing continue to affect the RoI for farmers. The market is ruled by commission agents who keep the farmers in their stranglehold through various means. This, particularly since the farmers are forced to sell through these commission agents due to the non-availability of an auction platform. “The commission agents resort to giving out loans of Rs.20,000-25,000 to the farmers and during the time of procurement, coerce them to sell the produce through them. This way, the commission agents not only get an interest on their loan, but also 4% commission from the farmers for selling the crop through them. This practice has also led to many farmers getting entrapped in debt and becoming captive to the commission agents’ diktats,” Ajay, a leader of Andhra Pradesh Rythu (Farmers) Sangham told The Dollar Business. Ajay believes the day is not far, when the entire produce will be under the control of commission agents.
No competition
Despite minor impediments, a big positive for Indian chilli farmers, as well as exporters, is the fact that production is on a decline in China which was, till recently, one of the biggest chilli exporters in the world. This will keep forcing global buyers to come to India, especially Guntur. Dried Red Chilies, especially like the Teja varieties, are proving to be delicious pickings for global buyers to spice up their pizzas and pickles. Vast swathes of red, scorching under the sweltering heat in the market yard, can make you sweat – not from the heat, of course! But, this is one ingredient the world craves for to satiate its taste buds, despite the consequences.
“Even China and Mexico are importing Teja chilli from guntur” - Kilari Venkata Rosaiah, Proprietor, KKR & Co., and President, Guntur Chillies Merchants Association
TDB: China seems to be an emerging and potential market for Guntur’s chillies, especially the Teja variety. What do you attribute this, transformation of China from being a major exporter to being an importer, to?
Kilari Venkata Rosaiah (KVR): From 2005 till 2008, China was the world’s No.1 chilli exporter. Since the last five years, however, China’s output has been declining due to crop failure. Now, India occupies the No.1 position, with China sourcing and procuring heavily from India. As a result, Indian exports have been scaling up. Total exports have gone up from 80,000 MT in 2006, to 3 lakh MT now. In terms of value, it was Rs.300 crore then, now it has crossed Rs.3,000 crore.
TDB: To what extent has China’s decline worked to the advantage of India, in terms of market expansion?
KVR: Asian countries like Indonesia, Malaysia and Singapore were earlier dependent on imports from China. But now that China is not exporting much, these countries are sourcing huge quantities from India.
TDB: What is the quantum of Teja grown in Guntur, as compared to other varieties?
KVR: Nearly, 50% of the crop grown in Guntur comprises the Teja variety, because of the huge demand for it. Its massive share can also be attributed to the fact that Teja has high resistance to pests and viruses, because of innate pungency. Its output and prices are higher than all other varieties, though not as high as the hybrid ones. Today, the price of Teja is hovering around Rs.83-84 per kg, while that of other varieties is about Rs.78 per kg. Sometime, the difference between the price of Teja and that of other varieties can be as high as Rs.15 per kg.
TDB: Has the Teja variety got any global competition?
KVR: It is grown only in India, especially in the Guntur region. Farmers here are also going for intensive cultivation. They have been enjoying profits for the last three to four decades. Elsewhere, you cannot find farmers who are into intensive cultivation of this variety. Now, it is also being grown in Madhya Pradesh. Last year, the output in Madhya Pradesh was nearly 35-40 % of the Guntur output.
TDB: Teja also seems to be trending in the international market. What makes it such a preferred variety?
KVR: Even Mexico, which, with more than 60 colours, is the biggest producer of chilli in the world, is procuring Teja from Guntur. It has the second highest pungency in the world, and is next only to Assam Joloka in pungency. But since the latter is produced in small quantities and does not have a significant market share, Teja rules international markets. In fact, such is the fascination for this variety that a Chinese buyer has set up a unit in Khammam to extract oleo-resins from it. The process involves separation of colour and pungency. They sell pungency at one rate and colour at another. Apart from in food, Teja is also used in paints to get rid of insects. The varieties produced in China have more colour, but less pungency. Now, Teja is being taken to China and hybridised with Chinese varieties.
TDB: What are the current market trends and the future outlook of dry red chilli exports from India?
KVR: India’s total production is anywhere between 12 and 40 lakh MT/annum. The domestic to export market ratio is 65:35. Guntur’s contribution is between 60-70%. Presently, there are no brought forward stocks from previous years. Hence, everything that is coming to the market is being sold out. Simultaneously, exports are also going up smartly. With China’s procurement indicating an uptrend, the prospects look quite good. Last week, we had a buyer from China who said he wanted to buy in smaller quantities because of the price of Teja variety has shot up by Rs.1,000 in one month. He indicated that he would buy in bulk when prices are lower.
TDB: Do you have any suggestion to boost exports?
KVR: Very rarely do you find an industry for chilli products. Hence, there is a need for establishing an industry for dry red chilli. All oleo-resins manufacturers are based in Kerala, since the Spices Board is located there. If industries are set up in Guntur, farmers will be benefitted.
“A minimum support price for chilli will be of great help for farmers” - Y. Radha Krishna, Secretary, Guntur Committee, AP Rythu (Farmers) Sangham
TDB: Farmers seem to be taking to Teja cultivation in a big way because of demand from international markets. How do you view this trend?
Y. Radha Krishna (YRK): Guntur is famous for many dry red chilli grades, but preference for Teja is inevitable because of demand and pricing factors. Teja is costlier by Rs.1,000 per quintal, when compared to other varieties due to its high pungency and dark red colour. Other varieties are also in demand, but they don’t fetch the kind of price Teja does. Today, the price of Teja stands at Rs.7,000 per quintal.
TDB: Since the price of dry red chilli is based on the intensity of colour, apart from pungency, is it true that artificial additives are being used to give darker tones of red to chillies?
YRK: This is not happening at the farmers’ level. The practice does exist to some extent, but mostly happens during the powdering phase. Some traders buy cheaper, lighter shades of chilli and then add colour to sell them at higher prices. There are agencies to monitor and prevent such practices. How effective they are, however, is an open question.
TDB: Chilli farming is believed to be quite lucrative. Can you give us an idea of the economics involved?
YRK: The investment for a farmer is between Rs.1-1.1 lakh per acre and the yield, depending on climatic factors, is between 30-35 quintal per acre. Considering the present market price, i.e., Rs.7,000 per quintal, the return for farmers is around Rs.1 lakh per acre, after paying the commission to agents. This might not always be the case though, because adverse climatic conditions can impact yield and quality. Unprecedented rains might, at times, damage the crop and it can also become susceptible to fungus due to high moisture content and water seepage. Even a little reduction in yield, or in value by (say) Rs.1,000 per quintal, can cause a big dent in a farmer’s income.
TDB: Why is there a big variation in the price of chillies?
YRK: The arrivals from the farms are first accumulated, following which, sorting is done. After drying, some chillies assume deep red colour and some assume lighter shades. The chillies are then graded accordingly and the prices vary between Rs.5,000 per quintal and Rs.8,000 per quintal depending on their colour and other factors.
TDB: Guntur has the biggest chilli market in Asia. What system of marketing is followed here?
YRK: Chilli farmers bring the produce to the market and sell it through agents, who charge a commission of 4%. Then, traders procure the produce from the commission agents. There are about 300 commission agents in the district.
TDB: Is it a legal practice? Why is the Spices Board not mandating auctions?
YRK: All commission agents here have licences. So, it is legal. But instead of the mandatory 2% commission, they charge anywhere between 4% and 5%, and at times, even higher, depending on demand. So far, there are no indications from Spices Board of India that it is creating an auction platform for chilli farmers of Guntur.
TDB: What factors decide dry red chilli prices? Should there be a MSP for it as well?
YRK: Prices rule according to supply and demand – both domestic and export. A Minimum Support Price (MSP) would definitely be an advantage for the farmers. For instance, since the investment by a farmer is Rs.1 lakh per acre, the government can add Rs.1 lakh to this and set a MSP of Rs.2 lakh per acre output. For farmers, the price should be at least Rs.7,000 per quintal. Anything lower, affects them. Such a guarantee would insulate them from fluctuations in output and market trends.
Industry: Agriculture[/sociallocker]
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