March 12 – Indian Peas Prices Are Falling Despite Import Taxes

What are the actual grain market analysts in India saying about the effect of the Indian import taxes on peas? Has the government not thought this through?

What are the actual grain market analysts in India saying about the effect of the Indian import taxes on peas?

The GrainCents team has long commented on the effects of India’s import tax on pea shipments heading to that country.  

However, in this article, we will relate the opinion of an Indian analyst on this matter and will provide another glimpse on the effects of India’s action on farmers in major pulse producing countries

Below, you’ll see one Indian-based analyst’s perspective of the situation.

Specifically, they suggest that the Indian government missed an important point when it decided to act and start taxing pulse imports.

In particular, government intervention is ineffective when it comes to markets (something that we’ve commented on a few time).

Whatever the governments do to fine tune them it is counterbalanced by the law of supply and demand. This is a simple lesson in Economics 101.

What has the Indian government missed in the overall picture?

It’s actually fairly simple.

First, they have not accounted for the hefty carry-over stocks from last year’s record pulse crops. This is one reason for the price decline of pulses in India.

Second, the market is currently pricing in another record crop of pulses, triggering further depression of prices for the things like peas, chickpeas, and lentils.

To make matters even worse, the Indian government action opened the way to cheaper-priced commodities to flood the local market, as it is the case of paper.

To sum up, the take-home message is that commodity prices are only looking at the supply-demand equation, and any government intervention will make the matters worse.

On a wider note, in response to depressed world prices, we know that Canadian peas acres area expected to fall significantly. But we also recently discussed a similar situation for the Australian peas crop of 2018/19.  

Basically, to sum up, the Indian government is getting the unintended consequences of not properly thinking through their import tariffs.

The negative result here though is because of the lower prices, we could see the Indian government double-down on their bet and continue to increase import taxes on pulses.

Thus, we continue to stand by our (unfortunate) thesis that these tariffs won’t be removed for another 9-15 months.

 

Why crop prices are falling despite higher MSP, stiffer import tariffs

The Centre’s moves to stop domestic market prices of agri commodities from falling, be it by increasing the minimum support price (MSP), hiking import duty or levying a minimum import price (as in the case of pepper), have not been effective. While market prices do go up in a knee-jerk reaction following the news, they soon revert to earlier levels.

Sample this: The Centre imposed a 10 per cent import duty on wheat in March 2017 and doubled it to 20 per cent in November. But wheat prices have only fallen — from 20.5/kg in February 2017 in Delhi, to 18/kg now.

Similarly, the government has fiddled with the duty structure of gram (chickpea) twice in the last four months. In December last year, it slapped a 30 per cent import duty on chickpeas and recently doubled it to 60 per cent. But prices have only moved down. In Latur, Maharashtra, the prices have moved from 60/kg in January last year to 35.50/kg now.

The same is the case with pepper; while traders and re-exporters in the domestic market are fighting over the recently levied MIP (minimum import price) of 500/kg, pepper prices have not been impacted.

The spot market price in Kochi was 420/kg at the time of the MIP levy. It moved to 470/kg in two weeks, but then dropped to 430-420/kg by February. The price is around 380-390/kg now; down from 500/kg in July last year.

The reasons

Large carry-over stocks in many crops is one of the reasons for the price decline. In the last two years, production of some agri commodities both in the domestic and in the international market has increased significantly. For instance, wheat production in Russia has risen from 61 million tonnes in 2015-16 to 85 million tonnes in 2017-18 — a compound annual growth rate of 18 per cent. In Argentina, it rose from 11.3 million tonnes to 18 million tonnes in the same period.

And, in India, wheat production hit a record high — from 92.29 million tonnes to 97.11 million tonnes (according to the second estimate for 2017-18 from the Ministry of Agriculture). To top it all, the period also witnessed record wheat imports — 51.7 lakh tonnes in 2015-16 and 57 lakh tonnes in 2016-17.

Asked why the import duty hike didn’t push up prices, Satya Dev, a large wheat trader in Kota, said: “Import duty levy came in very late last year… a lot of imported stock had already come and since domestic production was also high, the dealers accumulated a lot of stock. How will import duty levy impact market price when no one is importing?”

No let up

Also, import restrictions do not stop cheaper-priced commodities from coming into the country. Take the case of pepper, where the Centre imposed an MIP to stop imports. Gulshan John, MD, Nedspice Processing India, a spice exporting company, explains why the move didn’t help: “MIP was a cosmetic support that offered relief for a short while. Now pepper is coming in illegally from Vietnam through Nepal.

“The global price of pepper is around 215/kg, and I hear that pepper imported into India is priced around 340-360/kg; which is still below the local market price. Artificial ways of keeping the price high when there is a huge surplus in the market cannot work…”

MSP increases, too, don’t matter. The import duty hikes aside, there has been an increase in MSP for pulses, too. But, given the large surplus last year and a record crop expected this year, too, the prices are only looking at the supply-demand equation, say market experts.

And, given that MSP procurement is too small compared to the harvest, it can’t sway the market price, adds a pulses farmer from Latur.

H/T: The Hindu Business Line
About the Author
Adrian Uzea

Hailing from a farm in Romania’s breadbasket, Adrian’s keen interest in agriculture inspired him to obtain a Master's degree in Ag Economics from the University of Saskatchewan. Adrian provides deep, original insight for Canadian farmers of grains, oilseeds, and other specialty crops to help improve their bottom line. He was previously a Market Analyst with a provider of grain marketing services like DePutter Publishing.