General Characterstics

• Chillies belong to the genus capsicum, under the solanaceae family and are believed to have originated from South America. 
• Chillies are valued principally for their high pungency and colour. 
• Chilli forms an indispensable culinary spice in several parts of the world. It is also used in beverages and in the preparation of medicines.

Supply Characteristics

• India is the world's largest producer, consumer and exporter of chillies in the world. India also has the largest area under chillies in the world. Chillies are the most common spice cultivated in India. It is estimated that India produced 1060345 tons of dry chilli from an area of 8,84,183 hectares in 2003-04.
• Almost all the states of India produce the crop. The important chilli growing states of India are Andhra Pradesh (46%), Karnataka (15%), Maharashtra, Madhya Pradesh, Orissa, West Bengal, Rajasthan and Tamil Nadu.
• Chillies can be grown during the entire year at one or the other part of the country. However, the major arrival season extends from February to April. The crop planting starts from August and extends till October. While, the harvesting begins from December with 5% of the arrivals usually reported in this month. The peak arrivals are reported in February to March.
• There are several varieties of chilli cultivated in India. The most popular among these are, Sannam, LC 334, Byadgi, Wonder Hot, Jwala etc.
• The major chilly growing districts of Andhra Pradesh are Guntur, Warangal, Khammam, Krishna and Prakasham.

Demand Characteristics

• India is the largest consumer of chilli in the world. Around 90% of India's production, is consumed within the country. 
• It is estimated that around 25-30% of the chilly crop is used for powder preparation, with the branded chilly powder manufacturers accounting for around 5% of the total volume. 
• India exports around 80000 - 1 lakh tons of chillies a year. 
• India exports chillies in the form of dried chillies, chilly powder, picked chillies and chilly oleore.
• The export of chillies in 2003-04 was worth Rs.366.8 crores (US $ 79.95 million). The total quantity exported was 86575 tons. 
• Chilli constituted 33% of total spices exported from India in 2003-04.
• Indian chili is mainly exported to USA, Sri Lanka, Bangladesh, the Middle East and the Far East.

Trade Characteristics

• Well-established spot markets at Guntur, Warangal, Khammam in Andhra Pradesh; Raichur, Bellary in Karnataka are the major price reference points, as these are based at the production centers. 
• The trade channel involves several members viz., a village level trader, commission agent, wholesaler, retailer, agents for exporters and exporters. The commodity changes hands several times, exposing all these members to price risk. 
• Guntur is Asia's largest market for chillies. Normally, about 80 lakh to one crore bags of chillies, weighing approximately 35 to 50 kgs is traded during the season at Guntur market alone. The marketing season begins in the first week of February, peaks during the month of April, and closes by the middle of May. 
• The market players estimate that trade worth nearly Rs 500 crores takes place in Guntur during season. During the peak arrival period around 0.8 - 1 lakh bags of 35-50 kg is traded here daily.
• Around 35-40% of the crop that arrives at Guntur, is estimated to be stored in the cold storages present at Guntur and surrounding areas. 

Market influencing factors

• The commodity displays high volatility, with the prices heavily dependent on season, production in different producing tracts spread across the country, demand from exporters and the stock available at the cold storages. 
• The prices of the major chilly varieties sold in the country are correlated with each other. As a result, the players in other varieties can also hedge their risks through this single variety.