Market Updates

For the second year in a row, India seems well set to harvest a large pulse crop, even as policymakers continue to grapple with low farm-gate prices and gathering growers’ ire.

After two years of weather-affected harvests that led to what is described as ‘dal shock’ (lower production, escalating prices, record imports and government intervention), the country witnessed a massive rebound in production in 2016-17 to 22.9 million tons, up from 16.3 million tons in the previous year.

In the ongoing year 2017-18 India is most likely to see a repeat of last year’s production performance. The kharif harvest estimate – 8.7 million tons - is a case in point. 

2016-17 saw a dramatic collapse in domestic prices following a massive rebound in production. The price action was exacerbated by a surge in imports of pulses to record levels (6.6 million tons). Farm-gate rates fell substantially below the minimum support price (MSP) announced by the government. Growers were most aggrieved by the supply burden.

Farmers’ protests forced the policymakers to intervene in the market to stem the price rot. The government procured about 1.6 million tons, a quantum seen as wholly inadequate under the given circumstances to prop up low prices. Huge inventories piled up and demand growth was lackluster. Demonetization of high value currency in November 2016 and its lingering aftereffects saw demand growth across commodities, including pulses, slowing.

To support domestic prices, in August this year, the Indian government imposed quantitative restrictions (QRs) on import of tur/arhar (pigeon pea), urad (black matpe) and moong (green gram). For the Indian market, these pulses generally originate from Myanmar and East Africa. Sadly, growers – often smallholders – in these overseas origins have had to bear the brunt of the Indian policy change and consequent price collapse in the export market.

Is India’s imposition of QR on select pulses WTO complaint? This needs investigation. The position is as follows: From 1995 when World Trade Organization came into existence, members were obliged to eliminate quantitative restrictions on imports and exports. Being a responsible member of the WTO, India has been able to progressively remove QRs on most of the goods, according to the government. However, consistent with Article XX (General Exemptions) of General Agreement on Tariffs and Trade 1994, a member can maintain restrictions on imports / exports on the grounds of protection of public morals; human, animal or plant life or health; patents, trademarks and copyrights, and prevention of deceptive practices; conservation of exhaustible natural resources; and protection of trade of fissionable material or material from which they are derived; preventing traffic in arms.

Accordingly, India maintains restrictions on around 500 tariff lines under QRs in the form of prohibition, restriction or exclusive trading by State Trading Enterprises. The investigation to verify whether India’s decision is WTO compliant should unearth reasons for placing select pulses under QR and whether the QR serves the agreed and specified objects sought to be achieved.

As of now, the QR on select pulses is valid till March 31, 2018. There is a growing impression within country that the government’s move to curtail pulse imports is shortsighted and could prove to be counterproductive in the medium-term. This author has consistently maintained that Indian agriculture is fragile and vulnerable; and that the country has limited resilience and the policymakers have limited ‘market intelligence’ to effectively advance growers’ and consumers’ interests. The failure to anticipate the ‘dal shock’ of 2015-2016 is proof enough.

Be that as it may, in preparation for the planting of upcoming Rabi crops, the Indian government has announced MSP for Chana (chickpea) at Rs 4,400 per 100 kilograms trading lot, 10 percent higher than the previous year. This hike is notional because chana has been trading well above the MSP for more than one year. This hike is unlikely to enthuse chana growers. For masur (lentil), the MSP is Rs 4,250 per 100 kgs.

Deficient soil moisture conditions in major Rabi crop growing regions (Madhya Pradesh, Uttar Pradesh, Punjab, Haryana) is a cause for concern. The Rabi crops would certainly need precipitation in the form of winter rains during mid-December /mid-January. Also, India has faced unseasonal rains during harvest time in March /April in three of the last five years. The looming weather risk cannot be overlooked.

The methyl bromide fumigation issue needs clarity at the earliest. The facility of fumigating at the Indian discharge port is set to expire December 31, 2017. If the facility is not extended, it can retard flow of pulses into the country. However, there is hope trade will find a way out. Exporters will perhaps fumigate the material at an intermediate port in a nearby country and provide appropriate documentary evidence. It will push the cost up though.

(G. Chandrashekhar, Editor, The Pulse Pod, is an economist and global agribusiness specialist. Views are personal. He can be reached on +919821147594 and gchandrashekhar@gmail.com)