India import tariffs reverberate through crop markets

The Indian government took markets by surprise a few weeks ago when they increased import tariffs for wheat, oilseeds and vegetable oils, and introduced a new 50 per cent import tariff for field peas.

A successful monsoon season this year boosted Indian pulse crop production potential and, subsequently, this year’s program to ship Canadian pulses into India is expected to be much smaller than the two years prior.

With a sharp increase in domestic India pulse production last year, and appearances of strong production again this year, pulse prices in India have come under sharp pressure, placing financial stress on Indian farmers. That's why these import tariff measures were taken by the Indian government in an effort to support local values and, in turn, farmer profitability. 

Potential impact

Concerns are rife about the potential impact of these policy changes, not only on field pea markets, but in broader global pulse markets.

The Indian government has been known to make sudden changes to agricultural and food policy in the past. They are constantly at odds between the conflicting agendas of supporting local farmers (and, in turn, supporting local production volumes and establishing food security) and the affordability of food for the Indian population of over 1.3 billion people.

Given India’s importance to global pulse markets, the tariffs sparked concerns about the possible extension of these polices to other pulse varieties such as lentils.

Restrictions pressuring values

There is further concern about how market access restrictions may pressure values in producing/exporting nations and how such pressures may influence a short to medium term decline in pulse production (lowering acres).

India remains a net importer of pulses, and although a lower than average level of imports may be required from Canada this year, in future years the re-emergence of India’s appetite in global pulse markets has the ability to create some real market volatility.

Short term

In the short term, further price volatility and liquidity is to be expected as the trade continues to digest how local pulse markets will reflect these policy changes and potential future policy changes.

India’s decision to drop this 50 per cent field pea tariff bomb on imports triggered a significant move lower in Prairie cash bids for yellow peas, dropping from $8 per bushel down to feed value of $6 per bushel across many Prairie locations. Some merchandisers went to no bid until better clarity in the marketing world emerges. The ensuing confusion triggered cardiac arrest throughout the pulse trade here and internationally.

Markets stabilizing

Last week saw some stabilization in the marketplace, with cash pricing in isolated locations seeing improvement - in some cases, back just above $7 per bushel - likely destined for the American market.

Time is required to let the initial bearish knee-jerk market reaction to the India tariff news settle before prices return to some new equilibrium between buyers and sellers.

Reorganizing the matrix

This India tariff event will, in time, re-organize the global supply/
demand matrix for our pulse trade.

This tariff event will, in time, reorganize the global supply/demand matrix for our pulse trade, and will accelerate the development of other pea demand initiatives that will eventually shift our industry away from being so heavily dependent on India. 

Impact of fracking

PFCanada suspects that the global-fracking (grinding for flour) and protein extraction story for numerous food ingredients will eventually come to influence the demand discussion and replace India as the former dominant demand outlet. Such initiatives are also expanding in the United States and China.

Already, four companies have announced plans to build fractionation plants in Western Canada. One is already operating in Vanscoy, Sask., with other plants under construction at Moose Jaw, Sask., Bowden, Alta. and Portage la Prairie, Man., which combined, will generate about 500,000 tonnes per year of new localized demand for peas.

Bottom line

India’s 50 per cent field pea tariff imports triggered a significant move lower in Prairie cash bids. Time is required to let the news settle before prices return to a new normal.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.