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Chili Prices

In: Business and Management

Submitted By boxcar
Words 839
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Macroeconomics

Short Essay 1
Chili Prices hot on short supply and rising demand
PK KRISHNAKUMAR & JAYASHREE BHOSALE, ET Bureau Jul 16, 2015, 04.00AM IST

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KOCHI/PUNE: Chili prices are getting hotter due to supply squeeze and rising demand. The prices of the largest exported spice from India are hovering around Rs 95-Rs 100 a kg, 20 per cent more than the prices a year ago, and may race to a new high depending on the demand, trade insiders say Chili crop was down by 15 per cent-20 per cent due to erratic rains last year. This along with high export demand in the end of 2014-15 seems to have dried up the stock, particularly in Andhra Pradesh — the largest chili producing region.
"At present the cold storages in Guntur are showing 30 per cent-40 per cent deficiency," said Ravipati Peraiah, MD at Vijayakrishna Spice Farm, a dry chili manufacturer and supplier based in Bellary.
The annual chili production in the country is about 13-14 lakh tonne. Rising prices have led to hoarding, which in turn affects supply and boost prices further.
"About 75 per cent of the available stock is with the traders and only the rest is with the farmers," said Venkat Rosaiah, president of Guntur Chilli Commission Agents Association. "Heavy purchase by China and Bangladesh last year has created pressure on the stock and has lifted the price. But if Andhra gets good rainfall in the coming weeks, the prices will cool." The prices are expected to go above Rs 100 in the coming weeks. Chili exports in 2014-15 touched a record 3,47,000 tonne valued at Rs 3,517.10 crore. This time it remains to be seen how export will pan out. "The sowing for the next Chinese crop in October is high, indicating a better crop unlike last year. But China's domestic chili consumption has gone up so much that its production is insufficient to meet the demand and hence they are forced to buy from other sources like India," said A P Murugan, director at Paprika Oleos, a major chili exporter based in Tamil Nadu.
Meanwhile, keeping with the national trend of opting for crops with high paying potential, farmers are expected to increase area under chilies. Seed companies confirm such a trend.
M G Shembekar of Ankur Seeds said that this season, apart from soybean and pulses, there is high interest in chilies. There has been good demand for chili seeds right from the onset of the monsoon across prominent chili growing states like AP, Maharashtra, MP and Gujarat, he said

http://articles.economictimes.indiatimes.com/2015-07-16/news/64495076_1_chilli-prices-chilli-crop-paprika-oleos

This article – “Chili Prices hot on short supply and rising demand” is about shock to the chili crop due to the erratic rains rising prices 20% and increases in demand due to the population increase in China. With high export demand in the end of 2014-15 the stock has dried up especially in Andhra Pradesh which is the largest chili producing region. Heavy purchases by China and Bangladesh last year has created pressure on the stock price causing it to increase. Since China’s chili consumption has gone up, and its production is insufficient to meet the demand, they are forced to buy from other sources like India. Seed companies are confirming more farmers are buying their chili seeds to increase crops keeping up with the trend with high paying potentials. Rising prices have led to hoarding, which in turn affects supply and boasts prices further.

Here are some secondary economic effects result from hoarding. Hoarding is an increase in demand, in the short-run with supply fixed, the price of the hoarded good would increase. This price increase does not necessarily mean that a real scarcity problem exists in the long-run. In the long-run situation, the direction of price change is dependent on the supply conditions and the consumer's evaluation of these conditions.
The price of the hoarded good would decrease if the producers reacted to the increase in demand by increasing the supply of the good. The longer the time period under consideration and the higher the mobility of the inputs used to produce the good in question, the higher would be the elasticity of supply and the lower would be the increase in price in the long-run. The increase in the quantity supplied might also cause the consumers to revise their previous expectations concerning the hoarded good. A decision on their part to hoard less or to stop hoarding would reduce demand bringing prices down even further.
With the prices rising 20% and the effects of hoarding, the demand could go down in the future. With crops increasing - translating to increasing supply, which in turn could lead to lower prices again. This is also related to the weather effects of El Nino which will have long and short term consequences for many people in many countries.…...

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