Pulses market turning potentially explosive

Rising global grain prices, weakening dollar and firmer ocean freight rates have combined to make pulses imports more expensive. The landed cost is today about Rs 4,000 a tonne higher than it was a few months ago. For instance, for green and yellow peas, importers pay over $450 a tonne, that is at least $100 a tonne more than they did say three months ago. The firming rupee means that Indian importers pay slightly less in rupee terms against dollar contracts; but the overall adverse effect of rising grain prices on the Indian pulses market is clearly visible.

Domestic prices of green and yellow peas are currently at over Rs 18,000 a tonne, up from close to Rs 15,000 a tonne three months ago. Price rise is seen in other pulses too. The threat of a further rise in pulses prices is real, as the demand-supply fundamentals of the pulses market are getting tighter by the day.

Risk premium

Worse, overseas suppliers dealing with India build into their price what is called a ‘risk premium’. There are risks associated with supply of pulses to India; and one of the major risks is the risk of rejection at the point of entry on plant health grounds. Stem and bulb nematode is one of them. Currently, Indian phyto-sanitary regulation requires that overseas suppliers fumigate the consignment with methyl bromide. But this fumigant is hardly used in developed countries as it has been phased out.

This condition exposes the overseas supplier to the risk of rejection of cargo on arrival at the Indian port. Exporters say the extant quarantine conditions are too onerous for them to be able to do business with India freely. It is also reported that other importing countries in Asia – China, Pakistan, Bangladesh – do not impose such stringent conditions as India does. One must, however, hasten to add, as an agrarian economy and world’s largest producer (13-14 million tonnes), consumer and importer (2.0-2.5 million tonnes) of pulses, India has much at stake as far as agriculture is concerned.

Entry of exotic pests and diseases through the import route can potentially ruin the already fragile Indian agriculture. At the same time, widening demand-production mismatch in pulses has pushed market prices up. Poor consumers are the worst hit. Pulses are the cheapest vegetable protein for poor consumers; yet, per capita availability of pulses has steadily declined over the years.

Govt dilemma

The Government is caught in a dilemma. Import volumes are expanding and imports are an absolute necessity to contain price rise. But the risk of nematode infestation is real too and needs to be managed scientifically, without jeopardizing domestic farming. At the same time, the market would be unwilling to wait. Overseas suppliers continue to scout for other import-friendly markets.

Some practical solution would be in order. India is currently undertaking a pest risk analysis (PRA) for stem and bulb nematode. The exercise is likely to be completed in the coming months. However, until such time the PRA has been completed and appropriate measures to deal with the identified risks have been developed and implemented, India’s pulses imports remain at risk. An interim measure, according to grain sector experts, is that while India should continue the current practice of fumigating imported pulses on arrival in the country, Indian plant quarantine authorities can insist on certificate of test and clearance at the port of loading itself from the supplier country official agency.

For instance, Canada, the largest supplier of pulses to India, has an official agency known as Canada Food Inspection Agency (CFIA), which can conduct tests on basis of pre-agreed sampling and testing methods to certify the safety of consignments.

In any case, on arrival, the Indian Government can make random checks to ensure that imports conform to domestic regulations. Such a move, market participants assert, will considerably reduce the risk faced by overseas suppliers and would bring down the risk premium Indian importers are currently paying.

Quarantine issue

The quarantine issue deserves the most urgent attention for another reason. There is a strong possibility that pulses planting in the upcoming rabi season (summer harvest) would take a hit. Growers are likely to plant more of oilseeds and grains (other than pulses). Minimum support price for wheat has been hiked to a record level of Rs 1,000 a quintal (about $250 a tonne).Worse, in Punjab, Haryana, Uttar Pradesh and parts of Madhya Pradesh and Rajasthan, the soil moisture conditions are less than satisfactory. Farmers are unlikely to take a chance with pulses, but are more likely to favour wheat and rapeseed/mustard.

Output and yield

Output and yield will depend on the quantum of winter rains. Into 2008, pulses prices have a strong upside risk; and the market is turning potentially explosive for reasons both domestic and international.

Major origins such as the US, Canada, Australia may harvest less. If New Delhi wants pulses prices to stay under control, the only way is to augment supplies through imports, and by adopting clearance procedures that are practical and effective without hampering smooth flow of goods.

It is also necessary to review the role of Government parastatals in pulses import. Brave statements of intention to import large quantities do not help any one but the overseas suppliers to further jack up prices. State agencies enjoy a 15 per cent subsidy on pulses import.

This concession is not only unjustified but also distorts the market. In importing pulses and selling in the open market, State agencies discharge a commercial function like any other private trader. There is no justification to treat them preferentially by granting ad hoc concession.