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.

World pepper output likely to drop in 2008

Demand-supply gap seen at 55,000 tonnes

Kochi, Nov. 5 World pepper production is projected to be lower in 2008 at 2,62,400 tonnes as against 2,72,040 tonnes in 2007 and 2,89,230 tonnes in 2006 following weak crop in India, Brazil, Indonesia and Vietnam.

According to the International Pepper Community, there could also be a fall in the carry forward stock which is projected at 61,719 tonnes in 2008 as against 73,404 tonnes in 2007 and 88,384 tonnes the previous year.

Total exports during the current year is estimated at 2,01,700 tonnes as against 2,45,741 tonnes last year while the projection for 2008 has been put at 1,90,800 tonnes. It is against an estimated demand of 2,45,000 tonnes and hence, there could be a gap of around 55,000
tonnes between demand and supply next year.

Though the Indian production has been projected at 50,000 tonnes by the IPC, according to farmer groups it is likely to be around 45,000 tonnes. They attributed the decline to continuous rains in the Madikeri region of Karnataka resulting in severe berry drop. A major planter and agriculture scientist, Dr Jacob Thomas, told Business Line on Thursday that he anticipated a decline of 20-30 per cent in output of the current crop which is expected to be harvested in
December.

He said there were very few pure pepper plantations. Pepper is mainly grown as an intercrop in the coffee estates. Therefore, it is under tree shades without any chances of getting sun light. "The berry drop in these plantations has been severe," he said. However, he ruled out delay in harvesting given the current favourable weather conditions as the berries require sunlight for a fortnight for maturing.

Karnataka normally produces 20,000 – 22,000 tonnes of black pepper annually and because of the berry drop it is likely to be in the range of 15,000 – 16,500 tonnes.

According to farmer sources in Kerala's Wayanad and Idukki districts, the main growing areas in the State, there could be marginal decline because of heavy rains this year. Output in Kerala, they claimed, could be around 25,000 tonnes, while the Tamil Nadu production is estimated at 5,000 tonnes. Thus, the total output of the current crop might hover around 46,500 tonnes, they claimed.

Besides, according to Dr Jacob Thomas, there could be an estimated stock of 4,000 tonnes in Karnataka as the major growers are holding back their produce anticipating the prices to cross Rs 150 a kg in November. "There won't be a distress sale this year because of good coffee prices apart from writing off of coffee loans by the Karnataka Government," he said.

Trading sources estimates put the output for 2008 at 40,000–45, 000 tonnes while the IPC estimates placed it at this year's level of 50,000 tonnes.

The domestic consumption in India for the current year is estimated at 55,000 tonnes while for 2008 it has shown a drop of 10,000 tonnes to 45,000 tonnes, probably anticipating an increase in prices and consequent consumer resistance.

According to market sources, the current situation is favourable for more imports of pepper. Availability of lower grade pepper in other origins at low prices as against high domestic price due to tight supply, appreciation of rupee against dollar and availability of overseas advances at low rates of interest have placed importers in the country at advantageous position, they said.

In the world scenario, Brazilian output in 2008 is projected at 33,000 tonnes as against 36,000 tonnes in 2007 while Indonesian production is at 20,000 tonnes compared to 25,000 tonnes this year.

Vietnam production is also projected to be less by 10,000 tonnes at 80,000 tonnes from 90,000 tonnes in 2007. In 2006 Vietnam produced one-lakh tonne of pepper.

However, Malaysian production is likely to be at 23,000 tonnes as against 20,000 tonnes this year while that of Sri Lanka is projected to be marginally up at 14,900 tonnes compared to 14,640 in 2007.

Courtsey:Business Line