Pepper contracts to have mineral oil test

Last Updated: Mon, Dec 24, 2012 19:40 hrs

Strengthening quality norms for agri commodities, the Forward Markets Commission (FMC) is in the process of drafting a concept paper’ incorporating guidelines put out by other statutory bodies, including the Food Safety and Standards Authority of India (FSSAI) and the Bureau of Indian Standards (BIS).

The decision comes in the wake of FSSAI, on December 18, sealing around 5,000 tonnes of pepper worth Rs 180 crore deposited in six warehouses registered with the National Commodity & Derivatives Exchange (NCDEX), India’s second largest commodity exchange. FSSAI found traces of mineral oil –a prohibited substance – used for polishing pepper, in the stocks.

The 40-member Advisory Committee headed by FMC Chairman Ramesh Abhishek, in a meeting on October 7, discussed the need to replicate quality parameters laid out by other statutory bodies, to follow uniform quality standards across India.

Set to be ready in about a fortnight, the paper would also look at quality guidelines mandated by other statutory bodies, including Agmark and Hazard Analysis and Critical Control Points (HACCP) in addition to the above-mentioned agencies. Later, the commodity markets regulator would seek public opinion, which has become a common practice for the FMC, before finalising the guidelines.

  • FMC to incorporate quality guidelines put in place by other statutory bodies
  • To consider norms established by Food Safety Standard, BIS, etc.
  • Drafting a 'Concept Paper' to seek public opinion
  • No pepper contracts without mineral oil testing
  • To replicate in other agri commodities also
  • To also consider investments on setting up labs

“We used to consider a number of other parameters, including weight, moisture content and light berries in pepper as standard practice, since the contract was introduced nine years ago. The mineral oil’ test is new to us, which the Commission would introduce in the new contracts to be launched on the exchange platform,” a senior FMC official said.

In fact, FMC has asked the three commodity exchanges – NCDEX, National Multi Commodity Exchange of India and the India Pepper & Spice Trade Association – where pepper contracts are active, not to launch new contracts in this commodity without getting prior approval from the Commission.

“We would ask commodity exchanges to incorporate a mineral oil testing clause in pepper contract specifications without which contracts would not be allowed,” said the official.

On the expenses incurred for setting up such a facility in laboratories, the official said, “Mineral oil testing machines do not require huge investment. Hence, the laboratories should not have any problem in setting it up. For other norms, if any, put in place by different statutory bodies, the Commission would also consider investment to be incurred by laboratories in setting up such testing facilities.”

Traders have termed the sealing of pepper stock as a regulatory lapse, due to non-inclusion of the mineral oil testing norm in contract specifications.

Traders, apparently, were taking advantage of mineral oil tests not being incorporated in NCDEX contract specifications. The existing contract specifications were approved by the FMC in consultation with the Spices Board, according to the official.

Meanwhile, the contract which expired on December 20 had traders seeking delivery of a marginal 29 tonnes. Since, the entire quantity deposited in NCDEX registered warehouses was sealed by FSSAI, delivery could be a major problem, which may turn into default.

Amid threat of delivery issues, traders squared off their positions in NCDEX in the last 10 days of the December expiry, resulting in the open interest reducing to a negligible 29 tonnes from 2,437 tonnes on December 10.

The Commission, however, does not favour incurring massive expense by traders on testing of commodities meant for local trade in order to meet the norms put in place by other statutory bodies.

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