Sri Lanka plans talks on pepper trade barrier slammed by India

ECONOMYNEXT – Sri Lanka is planning talks with India to relax a minimum import price for pepper, a non-tariff barrier erected by India which has slashed exports of the spice by the island, a minister said.

"I will be travelling within the next 10 days together with two members of The Spice Council to meet India’s Minister of Agriculture," Primary Industries Minister Daya Gamage said in Colombo.

"I will also meet Indian spice processors, and as a government will sign an agreement with them to sell pepper at a certain price."

India slapped a 7,700 US dollar minimum import price per tonne of Sri Lankan pepper in December 2017, after Indian traders had apparently started to route the spice via Colombo using its entrepot facilities, falsely declaring the product as being from the island after value addition.

Sri Lankan pepper is allowed to be exported to India at zero duty for up to 2,500 tonnes under the Indo-Sri Lanka Free Trade Agreement. Any exports above the limit are subject to an 8 percent preferential duty under the South Asia Free Trade Agreement. Customs duties on pepper imports to India are at 70 percent.

Sri Lankan pepper is more expensive due to a due higher content of piperine, which gives pungency and quality to pepper, industry officials say.

Indian spice growers had claimed that Vietnamese pepper, which was cheaper, was coming from Sri Lanka.

"One or errant two traders, together with shipping companies forged documents to show that Vietnamese pepper shipments were Sri Lankan," Gamage said.

"Some of these shipments did not even enter Sri Lanka and were just transshipped."

When India slapped the minimum import price of 7,700 US dollars, Sri Lanka was selling pepper at 4,600 US dollars a tonne and world prices were around 4,100 US dollars.

Pepper prices are currently around 3,000 US dollars per tonne.

Gamage said that world pepper prices had fallen after growth in output from Vietnam over the past two years.

A stronger dollar had also kept commodity prices down during the period.

Indian spice growers had lobbied to stop all imports of pepper from Sri Lanka under the free trade deal, leading to the non-tariff barrier in the form of an exhorbitant minimum price.

The minimum price had slashed Sri Lankan pepper exports to India by 75 percent, Minister Gamage said, as Indian traders were unwilling to purchase at exorbitant prices.

Some were still buying in smaller quantities to use in niche products such as specialty sauces, he said.

In 2017, pepper exports to India were 63.7 million US dollars, or 75 percent of total Sri Lankan pepper exports, according to the International Trade Centre. 

Sri Lanka accounted for just over a third of India’s pepper imports in 2017.

Just over a third of Sri Lanka’s 29,546 metric tonnes of pepper produced had been exported to India during that year.

Data is not yet available for 2018. Gamage said that Sri Lanka’s pepper exports to the world in 2018 had been near the 2017 levels, due to diversification of clients.

The re-exportation of pepper from Sri Lanka was banned after India’s allegations, while Sri Lanka’s exports were subjected to more stringent customs checks.

Gamage said that may not be completely eradicate pepper re-exports, similar to how the country has not been able to fully stop the drug trade from pushing through cracks.

In East Asia, where trade is free and people are getting more affluent, a younger generation is growing up well nourished and taller than their parents due to free trade.

But in South Asia consumers are held hostage by producer lobbies who have political clout and poverty and malnutrition is more prevalent, free trade advocates say. (Colombo/Aug07/2019- Updated at 21:50 with export data, duty structures)