A 10 percent increase in pepper imports from Sri Lanka in December has left the domestic pepper industry worried, especially at a time when there is a shortage of containers and vessels.
“In December 2020 alone, 822 tonnes of pepper were imported against 80 tonnes in December 2019. The imports came at eight percent customs duty from Sri Lanka under the SAFTA (South Asian Free Trade Area) and duty-free under ISFTA (Indo-Sri Lanka Free Trade Agreement) with licence from the DGFT (Directorate-General of Foreign Trade,” said Kishor Shamji, Indian Pepper and Spice Traders, Growers, Planters Consortium (IPSTGPC) Coordinator.
All imports were made under the DGFT stipulation that the minimum import price (MIP) should be Rs 500 a kg. India levies zero duty on the import of pepper from Sri Lanka, with a cap of 2,500 tonnes. Anything above that is charged eight percent duty as per SAFTA.
Pepper imports below Rs 500 are allowed under advance authorisation scheme for 100 percent export-oriented units and those functioning in special economic zones to meet the needs of the oleoresin industry.
Pepper is also allowed to be imported at 51 percent customs duty under an agreement with the Association of South-East Asian Nations (ASEAN) from January 1, 2019 against the earlier duty of 70 percent.
“It is surprising that pepper imports continue to be higher during a year in which the novel coronavirus (COVID-19) pandemic has affected trade. The imports have come despite problems at ports and container shortage,” said Bose Mandanna, former Coffee Board vice-chairman and a coffee estate owner.
Coffee growers like him cultivate pepper as an intercrop on their estates.
According to IPSTGPC, the use of imported pepper in the domestic market increased 30 percent last year compared with 2019. “Pepper imports under SAFTA and ISFTA increased to 4,019 tonnes from 3,114 tonnes, though all were shipped into the country at the Rs 500 a kg MIP.
Overall, pepper imports increased 2.5 percent last year to 22,071 tonnes from 21,518 tonnes the previous year, Shamji said.
“We have raised the issue with various government authorities and have tightened the imports. Still, importers seem to be finding loopholes to bring pepper,” said K Vishwanath, Consortium of Pepper Growers Organisations (CPGO) Coordinator.
Various growers’ representatives such as the United Planters Association of Southern India, CAMPCO (Central Arecanut & Cocoa Marketing and Processing Co-operative Limited) and Karnataka Planters Association are part of the consortium.
A major objection raised by the IPSTGPC and CPGO is that how could pepper be imported at a MIP of Rs 500 a kg when importers sell them at Rs 300 in the domestic market.
“The landed cost of imported pepper after paying eight percent duty is Rs 540 a kg but the imported commodity is sold in the domestic market at Rs 300 a kg. This raises a serious question. Are invoices being manipulated to show a higher price?” said Pradeep Poovaiah, CPGO technical officer.
Shamji said in his statement that the excess money quoted in the invoices was being ploughed back through hawala or money laundering channels. He alleged that the imports were in violation of the Foreign Exchange Management Act.
“Working the price at Rs 500 a kg, the imports total Rs 208 crore. But Sri Lanka has contracted to sell pepper to other destinations at $3,500 a tonne. If we take that into account for the exports to India, then it works out to only Rs 104 crore. This is a clear indication of the invoices being manipulated to show higher price,” Shamji said.
The other problem with these imports is that Vietnam pepper is being brought into the country under the garb of Sri Lankan pepper.
“Pepper consignments from Vietnam come into India with fake Sri Lanka certificates of origin. These come without any change in the HSN (harmonized system of nomenclature) code that classifies goods from Vietnam,” said CGPO’s Vishwanath.
A change in HSN is required to show that value-addition has been done to a product. Pepper imports from Sri Lanka will qualify for concessions under SAFTA and ISFTA only if they have the certificate of origin.
Poovaiah said the problem of fake certificates arose since Lankan authorities issued them without proper scrutiny.
Vietnam pepper enters India at a lower duty that affects domestic growers. Imports into Mumbai, Tuticorin or Chennai ports have continued despite Sri Lanka stopping imports from Hanoi.
“Importers came up with another strategy of producing fake bills of lading as if the consignment left Sri Lanka ports when actually they would have come from Vietnam,” said Poovaiah.
Vishwanath said one way of tackling the imports would be to strictly ensure that the consignments brought into the country adhered to the six percent piperine content.
Pepper is imported duty-free by the oleoresin industry which says the lower oil content of the Indian varieties made them unsuitable for it. It contends that Indian pepper is harvested only after the berries mature.
On the other hand, Sri Lanka and Vietnam harvest immature berries that reportedly have the required oil content.
Shamji, however, said Indian pepper had a higher oil content of more than six percent and was suitable for the oleoresin industry. The oil content of Vietnamese pepper is below five percent.
Shamji and Vishwanath wondered how imported pepper met specifications such as oil and piperine in lab examinations.
“The samples are drawn by a third (private) party and sent to the Spices Board and we suspect there could be some manipulation because of that. We have raised the issue with the Centre,” said Vishwanath.
However, importers, particularly the oleoresin industry, find these objections a hindrance to the “ease of doing business” and have been taking up their case through chambers of commerce and industry.
Poovaiah said that one way to check these suspicious imports would be to increase the manpower of the customs department. “The process to crackdown on these imports is slow as the customs does not have the required manpower,” he said.
Similarly, the Enforcement Directorate that can look at any violation of FEMA is handicapped by staff shortage. “A better coordination of customs, ED and Department of Revenue Intelligence can help tackle the problem,” Poovaiah said.
Grower Mandanna said that Indian pepper was superior to Vietnamese or other peppers as its pungency was good. “Our pepper is grown naturally with lower or no use of chemicals,” he said.
“Our pepper cultivation is done on a sustainable basis. In Vietnam, it is grown as a field crop. Sustainable farming in our country should be encouraged but these cheap and fraudulent imports could endanger it,” Vishwanath added.
Higher imports, as in December, would hurt the growers much at a time when the new crop was due for harvest, Shamji said.
(Subramani Ra Mancombu is a journalist based in Chennai who writes on commodities and agriculture)Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.