India imposes a 50 per cent field pea tariff

India policy is unpredictable.

Facing yield-adverse conditions, pulse prices rose last year, which not only triggered modest imports, but activated a series of government policies, including stock ownership limits, tax raids and import quotas on some pulses. That occurred as supply grew following a decent sized 2017 crop.

Last week, India surprised the trade with the announcement of an immediate 50 per cent import duty on field peas. Nothing was implemented on chickpeas or lentils, but the market seems to be trading cautiously in case India does include them.

Why?

It appears the logic behind import duty is not only about wanting to stop imports, but to send a message to India’s farmers that the government is working to combat the perception of low domestic prices. This comes on the heels of domestic pricing of some pulses falling below the government support price.

The pea market needs to immediately reconcile product yet to be unloaded in India port, is sailing on water there or has been sold but not yet shipped.

As bleak as situation feels today, I feel Canada will be in a better position in two years and beyond if this didn’t happen. Why? This event will retool global supply/demand, expedite other demand initiatives and create an important shift away from being so heavily dependent on India. I suspect the global-fracking and protein story will eventually dominate the demand discussion and replace India as the former dominant demand outlet. 

Here’s a table that shows an approximate 500,000 tonnes of Western Canada capacity that is, or should soon be, engaged in the coming two years (protein, fiber and starch fractionation lines, splitting, flour mill). Such initiatives are expanding in the United States and China too. Trade impediment to India should mean this global story is poised to grow faster.

160,000 tonnes - Verdient Foods, Vanscoy, Sask.

100,000 tonnes - Canada Protein Innovation, Moose Jaw, Sask.

100,000 tonnes - WA Grain and Pulse Solutions, Bowden, Alta.

120,000 tonnes - Roquette, Portage-La-Prairie, Man.

India might now only import 500,000 tonnes of peas from Canada during the 2017-2018 crop year versus 1.9 million tonnes last year. That isn’t the end of the world because North American pea crop size is 1.35 million tonnes smaller than last year. 

Other destinations should import more

Further, with the immediate shift in pricing including a wider desi chickpea to field pea spread, other destinations should import more peas. When chaos engages, the immediate job is to reconcile product that has yet to be unloaded in Indian ports, sailing on water there, or has been sold but not yet shipped. During this time, market either goes to no-bid or to a feed value. Reconcile means “eat-it,” washout or redirect elsewhere at fire-sale price, but not where the owner or shipper endures financial penalty. This needs to be cleaned-up first, then the market can find a new equilibrium with new opportunity as an absolute or relative price. Trade patterns will have shifted, even though that may not be apparent today.

One drought away

India is always just one drought away from being in deficit. Their current protectionist policy would exacerbate the deficit and cause prices to shoot higher. That’s because a little forward coverage would intersect with reduced exportable surplus elsewhere since sellers were not incentivized to plant enough. 

India can be expected to have a problem with its pea crop one in every five years. It’s just that one can’t be expected in 2018. The India rabi pulse planting progress as of Nov. 10 is at 6.4 million hectares, versus 4.5 last year and the average of 5.2 million hectares. The speed of pulse planting progress in the past has been more about planting and expected agronomic conditions.

If La Nina weather patterns extrapolate into benign weather there, then chances of India having a yield wreck is low. In that case, price resolution requires hoping that exporters (Canada, the former Soviet Union countries and Australia) have a modest 2018 acreage or yield contraction event. Failing that, we cycle back to needing problems within India in 2019. However, demand should be on better footing by then.

Patience

My best advice today is to hunker down and be patient. Prices should firm once distress sales exhaust, and where retooled demand eventually intersects with value to all non-India destinations. Even if India doesn’t import another pound of peas, China buys could hit or top 1.5 million tonnes. Keep in mind that India’s insistence that pulses be fumigated before arrival remains outstanding, a policy that needs regular attention.

Bottom line

India’s surprise 50 per cent import duty on field peas may throw Canadian exports into a spin right now, but over time, the market conditions should strengthen once distress sales are exhausted.

Greg Kostal of Kostal Ag Consulting Ltd provides insight on commodity markets and marketing guidance. For more information, please visit www.gregkostal.com.