Impact of globalization on Spatial Price Linkages in chillies: Empirical analysis using Cointegration Test

Till recently, international trade in chillies was dominated by India. However, the exports from the country has come down considerably as China has emerged as a principal exporter of chillies. Chilli exports from India are mostly to Sri Lanka, USA, Nepal, Mexico and Bangladesh. India has immense potential to grow and export different types of chillies required by various markets around the world. India today faces stiff competition from China and Pakistan who offer their produce in international market at very competitive price. The reason may be that the prices of our chillies are too high for international markets on account of strong domestic demand. Sannam variety of chillies is in demand in importing countries. Buyers expect a high degree of hygiene and sanitation in processing and preparing chillies for export. Aflatoxin and pesticide residues are the two important problems which act as constraints in increasing chilli exports to importing countries. The recent rejection of the consignment of chillies by certain European Union countries and Australia on the grounds of Aflatoxin and pesticide residues poses a serious threat to chilli exports. Though spices form an integral part of Indian food, Indian chilies are yet to enhance their share in total spices export. The central focus of the present paper is to address two interrelated issues of chillies – the extent of co-movement of chilli prices in the domestic and world markets and the bearing of WTO measures on the extent of transmission of world prices to the domestic markets.