March 26 – India Exporting Peas? Not At These Prices

Over the past few months, there’s been lots of coverage on India’s import taxes on pulses. What about India’s export of pulses though?

Over the past few months, there’s been lots of coverage on India’s import taxes on pulses.

What about India’s export of pulses though?

While the peas import tax set by the Indian government is effectively sitting at 55%, the World Trade Organization will allow a maximum of a 100% import tax. For our chickpeas and lentils GrainCents readers, we’ve suggested that this 100% import tax threshold would be reached sooner than peas, albeit anything could happen with this government it seems.

Fortunately for peas, prices are the only ones among the local pulse prices in India that have responded to the government’s interventionist import policies in their attempt to boost local prices. In this past Sunday’s weekly GrainCents Digest email, we pointed that Indian peas supplies are not burdensome. But chickpeas are easily substitutable with the likes of peas (hence why yellow peas have been so attractive for India’s to import the past two years…and now they sit on a bunch of them.

However, it is on chickpeas that the Indian government is most interested in supporting. More specifically, Prime Minister Modi and company are looking to offer short-term export subsidies on chickpeas, to the tune of 7% of the value of the shipment. Chickpeas, after all, account for the majority of India’s exports of pulses.

To be clear, in addition to getting protection from international imports on the domestic market, Indian pulse export players (especially chickpeas) are now getting a bonus of sorts for exporting the Indian pulse crop!

It looks like this is another pitch that Indian authorities are trying in an attempt to revive Indian pulse exports. On the other hand, with the Rabi winter crop harvest in full swing, it can be seen as a desperate attempt to deal with a monster pulse crop in this season (2017/18) pegged at more than 24 million tonnes. If achieved, this would be a new record, beating the previous high – set last year! – by about 1 million tonnes.

This in mind, it’s been argued that Indian pulse exports are not growing because of the uncompetitive price of Indian pulses in the global market (see chart below).

 

At a first glance, this Economics 101: exports are up when Indian pulse prices are low / competitive. When prices are high, exports plummet.

Statistically-speaking, the correlation between the two factors – prices and exports – are indeed inversely correlated. While it’s not a perfect data point, it’s worthwhile to recognize. And it’s hard not to as we agree that India’s pulse exports have not trended higher. However, we do think it has nothing to do with the competitiveness of their pulse export prices but other factors.

That in mind, we would argue that is more the size of their domestic pulse production that drives their export prices, as shown on this chart.

At a first glance, the two series track each other very well, meaning they’re well correlated. While not perfect, you can certainly tell that the two move in tandem.

Thus, one could conclude that government intervention is largely dependent on the size of the domestic crop. History tells us though that these production booms and busts are certainly cyclical. When dealing with a record pulse crop, it’s clear why India wants to subsidize the consumption of their crop.

This is a classic example of market distortion due to government intervention. And those who play in more globalized markets, namely Canadian and Australian farmers – are taking the heat for it.

From where we stand, the general rule of them is that any government intervention will make the matters worse. Just take the Chinese-American trade war talk as an example – who wins there? Not many people.

 

 

Pricey Indian pulses make open-export policy unfruitful in global market

Exports of Indian pulses are not growing despite a decade-old ban that was revoked in two steps last year. The reason, industry observers say, is the uncompetitive price of Indian pulses in the global market.

The unit price of exported pulses—mostly chickpeas better known as chole—has consistently risen from $0.84 per kg in 2013-14 to $1.43 per kg in 2017-18, the highest in the last five years.

The quantity exported has dwindled from 346,000 million tonnes (mt) in 2013-14 to 109,000 mt in 2017-18 (till January). In value terms, exports show a declining trend from worth more than $200 million from 2012-13 till 2016-17 to worth $150 million shipped till January in 2017-18, despite the relaxation.

Exports of tur dal (split pigeon pea), moong dal (split green gram) and urad dal (split black gram) were opened in September 2017, earlier than the complete relaxation in December. Even exports of these have not materialised, which does not augur well for the realisation of the recently released draft of the agricultural exports policy, which intends to double India’s farm exports by 2022.

At the other end, pulses farmers who are demanding remunerative prices—through government procurement or in the market—would face losses if Indian pulses have to become competitive in the global market, since that would require lowering of prices realised by farmers.

But the trade requirements are exactly the opposite.

“The minimum support price for pulses in India is very high. Though the actual realised prices are sometimes lower than the MSP, they are still uncompetitive when we compare them to prices in the global market,” Bimal Kothari, vice-chairman at the Indian Pulses and Grains Association (IPGA), told Business Standard.

In the case of raw (un-split) tur (a stage prior to being processed as tur dal), the MSP is Rs 5,450 per quintal, while the actual price realised by farmers at mandis is ranging between Rs 4,000 and Rs 4,500 per quintal, and in some rare cases, at the MSP, in Maharashtra. The price of processed tur dal is built up to Rs 65-70 a kg, say traders.

Compared to this, tur dal from Myanmar is available in the international market at Rs 35 a kg, according to traders and industry association sources.

Same is the case with chickpeas from Australia and yellow and green peas from Canada.From these countries, the respective pulses are way cheaper than those from India.

“We are clearly out-priced in the global market. Some African and Burmese tur dal varieties are trading at as low as Rs 25 a kg, a price so low that is impossible for Indian tur dal to match,” said Mayur Soni, a pulses trader from Mumbai.

The last two years saw record sowing and production of all kinds of pulses in India. In the last two years, domestic pulses production clocked 23 mt and 24 mt, while imports touched 6.6 mt and 5.6 mt. With annual consumption of about 23 mt, annual availability of about 30 mt for two years has resulted in an unsold stock of about 12 mt.

With fears of a price crash after such oversupply, the government responded by opening up exports of all kinds of pulses.

However, this has neither helped farmers, nor exporters, traders say. “There should be a re-think of the policy which increases the MSP every year, for two reasons. One, there is no effective implementation of the MSP mechanism to ensure that farmers’ incomes improve, and two, that elevates Indian pulses prices in the global market, which hurts exports as well,” a trader said.

Pulses are vitally important for the protein intake of the average Indian consumer, including farmers themselves, while pulses cultivators form a large proportion of Indian farmers who need government support in ensuring remunerative incomes.

Only trade inside India is the way forward, say industry association sources.

“It is mostly the Indian diaspora in the Gulf, Europe and the USA that need pulses for regular consumption. But if they are getting them cheap from other countries, how will costly Indian pulses reach them?” an agriculture department official said on condition of anonymity.

The IPGA vice-chairman also said Myanmar, Australia and Canada were exporters to India over the last two decades.

“These countries, along with the UAE, have fully operational processing facilities and long running exports and processing contracts, which Indian traders do not have,” he said.

H/T: Business Standard
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.