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  1. Avoid panic on pulses

Avoid panic on pulses

The government should let the private trade take initiative to import, process and distribute pulses

By: | Updated: May 25, 2015 12:43 AM
India is a regular importer of 3.5-4.5 MT pulses per annum.

India is a regular importer of 3.5-4.5 MT pulses per annum.

The government has estimated (third advance estimates of the ministry of agriculture) the production of pulses at 17.38 million tonnes (MT) in 2014-15 versus 19.25 MT last year—a deficit of 10%. This shortfall is close to 2 MT and considering the worldwide availability of imported origins—be it Myanmar, Canada, Australia, Ethiopia, Tanzania Malawi or Mozambique—the Indian annual demand of 23-24 MT can abnormally spike global prices. What are the carry-in stocks after accounting for last year imports is a big question-mark?

India is a regular importer of 3.5-4.5 MT pulses per annum. However, due to huge decline in domestic availability this year and rising consumption, the import pull could be 5.5-6 MT, which could come at a huge cost. Sensing the imminent drop in output, international bidders have already raised their quotes between 8-16% of various pulses in less than a month. This is contrary to the trend of fall in agro-commodities prices by more than 20% in last one year.

Sharp vertical movements in domestic prices are reflecting the intensity of shortfall. Chickpeas can be taken as the dominant and representative illustration of supply and demand mismatch during one year. The price of chickpeas in NCDEX futures was about R27 per kg in May 2014 and about R45 per kg this year—an increase of 67%. Similarly, urad (black matpe) and tur (pigeon pea) prices have risen by 35% and 45%, respectively, on an annual basis. WPI of the entire pulses complex year-on-year in 2014-15 is up by 15% versus minus 1.64% in 2013-14.

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During 2006-11, the government had mandated STC, MMTC, PEC and NAFED to import 1.5 MT pulses per annum (or 0.375 MT for each PSU, of which 50% was to be yellow peas) and distribute them in the market at a discount (subsidy) up to 15% depending upon market conditions. A December 2011 CAG report castigated these PSUs, the Department of Consumer affairs (food ministry) and the ministry of commerce for incurring a loss of R1,200 crore (of which R897 crore or 75% was attributed to import of yellow peas) on various accounts, including poor handling and distribution by PSUs and lack of issuing guidelines/monitoring by the concerned ministries. The CAG may be right in certain respects but the scheme was intended to make losses—import at higher price and sell at lower price—to hammer down escalating local prices. But there are lessons to be learnt for avoiding the erroneous approach in the future.

The government must maintain a hands-off approach in the current scene because of unpredictability and volatility of pulses prices. The moment the government intervenes in any commodity, it flashes a signal of shortage and induces bullishness in that commodity. If the central and state agencies start issuing bulk tenders of import of pulses, it is going to fire international prices because of limited availability in the world market. Private trade will be forced to stay aloof from sourcing the commodity for the fear of steep escalation of import values and simultaneous fall in prices in the Indian market due to subsidisation by the government, thus accentuating scarcities.

PSUs have no wholesale or retail outlets. Resorting to tenders for disposal through wholesale traders is long-drawn-out process—because traders after furnishing the performance bond of 5-10% can relax for speculating best prices. This leads to imported cargo remaining stocked and undelivered in the market for a long time despite its availability in India. Encashment of performance bonds is no solution to rein in shooting values of lentils and grams.

The objective is to inject surplus in the supply-side and create deflation. Levying penalties on traders provides no respite from higher prices. It is only when traders invest their own funds that their speculative greed can be contained. The distribution system of wholesalers, dal mills and retailers is well-entrenched and the creation of any new structure would mean reinventing the wheel.

Both chickpeas and yellow peas are vegetarian nutritional proteins, of 20-22% potency. India imports about 2 MT of peas from Canada, Ukraine and France—the largest being Canada with an annual production of 3.8 MT. Indian trade has no alternative but to secure the major shortfall in chickpeas by adding imports of about 1 MT of yellow peas from Canada. Yellow peas from Ukraine and France are considered inferior by Indian trade. Their availability is also limited. Yellow peas are priced at R27-28 per kg against R45 per kg for chana/chickpeas. Cheaper yellow peas will put downside pressure on expensive chickpeas and prompt substitutional consumption.

Import of chickpeas, tur and urad from Myanmar, Australia and African countries cannot add more than 0.5 MT and that too at zooming prices. Total supply from Myanmar is 5.1 MT of beans and pulses, while their domestic consumption is 3.5 MT. The balance 1.6 MT is exported to India, China, Bangladesh, Pakistan and elsewhere. Thus, these countries cannot be banked upon for extra supplies to India.

Pulses come in raw form and require polishing, splitting, sorting and packing—a task that cannot be effectively undertaken by any official agency. Let the private trade take initiative to import, process and distribute. Wholesalers, dal millers and retailers have payment, lending and credit arrangements that are beyond the purview of PSUs. The prescription for the government is—do not panic and don’t indulge in bulk imports through PSUs or for the state governments. And accord priority to import vessels for unloading if there is port congestion. Do not insist on methyl bromide fumigation of cargo and facilitate entry with aluminium phosphide fumigants. Importers can operate freely only if there is no fear of other parallel channels with subsidised prices. Further, avoid enforcing any stock limits, because the imposition of stock limits chokes the arteries of distribution and is counterproductive.

The author is a grains trade expert

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