Pulse market looks to India for additional demand

Grain Central, March 29, 2021

India has seen protests against agricultural reforms in recent months. Photo: Nardendran Misra

AS AUSTRALIA makes good headway in marketing its near-record 2020 pulse crop, all eyes have turned to the Indian market as a possible volume buyer of chickpeas and lentils.

The Pulse Guidance Note issued last week by Pulse Australia (PA) and the Grains Industry Market Access Forum (GIMAF) said both the monsoon season and India’s political climate were being watched.

It said India’s and Pakistan’s rabi, or winter-grown, pulse harvests have come in slightly lower than expectations due to drier conditions.

While India’s political situation is still blocking most pulse imports, hope existed that India would drop its tariff on Australian lentils from the current 30 per cent.

India would normally be the driver for Australia’s pulse outlook, but tariffs and biosecurity challenges are currently keeping volume exports of Australian pulses out of the market.

Markets mixed

Overall trade patterns are likely to mirror that of the past two years, with Bangladesh active on chickpeas and lentils, Egypt the major market for faba beans, Pakistan a volume buyer of chickpeas, and India and Sri Lanka taking lentils.

India is not buying chickpeas, but prices for Australian product are holding thanks to demand from Pakistan, Bangladesh and Dubai.

“With Australian 2020 production at around 800,000t, it is debatable whether these markets can absorb the 2020 crop, so some growers are reporting to be holding stocks, waiting to see how the subcontinent production eventuates.”

Australia’s big faba bean crop has depressed prices to stockfeed levels and the export market is flat, notwithstanding cargoes to Egypt.

Australian stockfeed mills are seeing beans as the cheapest form of protein.

Accordingly, growers have sold wheat, barley and canola, but are holding beans in the hope of improved feed demand.

“The big question is: How much can the local feed market consume before the next crop.”

Recent rains in eastern Australia have boosted fodder supplies in the paddock, which points to decreased demand in the near term for faba beans from the domestic market.

Lentil prices are described as “well-supported “ at present.

“Market talk is whether India will drop tariffs to encourage imports, as happened in 2020.”

India’s demand for imported lentils in 2020-21 is seen at between 800,000t and 1 million tonnes (Mt).

“Bangladesh imported more than 500,000t in 2020 to cater for increasing lentil consumption and this looks set to continue.”

On lupins, the market is strong to Europe and South Korea, with prices supported by strong demand for soybean meal.

Field peas are not allowed into India at present, and without India there is little opportunity for Australian exports.

“As such the trade for Australia’s crop is essentially domestic.”

The Indian Government recently announced a quota of 150,000t for mungbeans for 2021-22 (April-March), and this will be allocated to a predetermined number of Indian millers and traders through an algorithm-based lottery system.

“This may provide a good opportunity for Australia to access the Indian market, given the expected good mungbean harvest this year, and potential disruptions with trade ex-Myanmar due to civil unrest.”

Australian production PA 10-year average PA 2020-21 ABARES 2020-21
Chickpeas 776,000 802,000 755,000
Lentils 358,000 565,000 634,000
Faba beans 351,000 448,000 510,000
Field peas 235,000 343,000 294,000
Lupins 490,000 714,000 774,000

Table 1: Pulse Australia (PA) 10-year averages in tonnes for Australia’s major pulse crops, PA estimates for the current crop year, and ABARES latest estimates for the current crop year as released in its February 2021 Australian crop report. Source: Pulse Australia, ABARES

New-crop outlook

Pulses continue to grow as a proportion of the Australian total winter cropping area.

“The prospects for 2021 are looking strong from a soil moisture and rainfall prospect, with market access constraints now fully realised in market pricing.

“Notwithstanding any unforeseen factors, the 2021 pulse season is one that is likely to be strong and deliver total production 5-10pc above the 10-year average off an area representing 8-9pc of the winter-cropping area.”

Update on India

India’s rabi harvest which produces chickpeas, lentils and field peas is now well under way.

India’s Ministry of Agriculture and Farmers Welfare in late February released its official Second Advance Estimate for 2020-21 pulse production of 24.4Mt, including 8.4Mt of kharif summer-grown  pulses harvested in late 2020.

These numbers were slightly down on the Ministry target of 25.6Mt.

Satellite imagery shows mostly neutral or less-favourable conditions for India’s major pulse-growing regions in 2021.

This is in accord with Indian analysts’ commentaries that while some areas of India received normal rainfall from the monsoon season, others were deficient.

Extending the satellite imagery across to Pakistan shows a similar pattern, with early comments suggesting a poorer crop than 2020.

India’s rabi harvest is expected to finish mid-April, with sufficient volumes expected to reach the market by mid-June to enable a more accurate production picture.

“Any indication of a shortage in production of either this rabi season or the coming kharif season will place pressure on the Government to review the current restrictive import conditions,” the report said.

“A big factor for sales of Australia’s 2021 season pulses will of course be the success of India’s 2021 monsoon, which arrives in June and runs until October.

“Current forecasts suggest a normal monsoon, although small variations can have quite an impact so this will be a factor to watch over the year.”

Indian protests continues

Either directly through farming or involvement with the supply chain, 50-60pc of India’s population is involved in some way with agriculture, which is therefore closely intertwined with Indian politics.

In September 2020 India’s parliament passed three pieces of legislation to make changes to its agricultural marketing system – essentially to bring in a level of market deregulation.

The need for marketing reform in India had been discussed for decades, so it was perhaps predictable that making the changes would not be easy, especially with the added pressures of COVID already causing stress.

Not all farmers are supportive of the changes, and protests erupted and have taken a very visual element, with thousands of protesting farmers camped for over three months now outside New Delhi.

“This issue matters when considering pulse-market outlooks because India’s protectionist policies have driven import-blocking tariffs in recent years.

“Any step towards market liberalisation — less government intervention — could be a step closer to less tariff/quota interventions.”

Implementation of the reforms, and handling of grower discontent in some quarters, has diverted India’s focus from resolving issues Australia has raised with India in relation to grain biosecurity.

“On a more positive note…there has been some positive engagement with India in early 2021 regarding weed-seed levels and phosphine fumigation.

“If negotiations continue to progress this year, we may see a positive outcome in 2022.”

In a separate update issued earlier this month, GIMAF said anything to do with agriculture in India is even more politicised than usual, which made issues around grain imports “very sensitive”.

“The other side of the equation for India is the needs of consumers for food, especially protein, with India’s production finely balanced for some crops between sufficiency and shortage,” GIMAF said.

“The Australian Department of Agriculture, Water Resources and the Environment has reported positive engagement with India in recent weeks on our concerns with weed-seed levels and phosphine fumigation, so the potential to move forward on these issues is improving.”

Lentil tariff complexities

The March Pulse Guidance Notes said India had restructured its tariffs into a standard basic customs duty for all pulses at 10pc, and introduced an Agriculture and Infrastructure Development Cess (AIDC), a cess being a tax for a specific purpose.

Cesses applying to pulses have been constructed to result in a nil change to effective import duties and taxes, with tariff plus AIDC equating to the same as the prior tariffs of 60pc on chickpeas 60pc; 30pc on lentils, and 50pc on field peas after quota.

On top of this is the 10pc social-welfare cess, which has been in place for some time.

The degree to which the Indian Government is prepared to vary the AIDC instead of the tariff, which on lentils reduced from 30pc to 10pc for periods during 2020, is unknown.

Containers on troubled waters

The global flow of containers is still seeking to find a new equilibrium after disruptions caused by COVID-19, and shipping lines have followed market demand and rerouted ships to the most valuable traffics, with fewer services to and from Australia.

“Instead of containers reaching destinations when expected, being emptied, then going on to the next cargo, delays have occurred.

Too many full containers sitting on ships and in container parks mean not enough empties.

“While pulses are typically exported from Australia in containers, the difficulties in containers this year are making bulk more attractive.

The report has cited a number of bulk cargoes of faba beans which have already gone to Egypt, and the recent bulk shipment of chickpeas to Pakistan.

“To add to the disincentive to ship in containers, stevedoring charges have increased significantly in many Australian port-based container terminals.

“Grain Trade Australia and its Australian Grain Exporters Council are some the many industry bodies pursuing these local issues, with many industries seeking regulatory solutions.”

Growers have therefore seen reduced demand from containerised packers and more bulk demand.

“Driven by shipping demand, world bulk freight rates have risen substantially in recent weeks, rebalancing the cost equation somewhat, but the risk and unreliability of container trade continues as a real challenge.

If container issues are not significantly resolved in 2021, growers and traders can expect more bulk trade for the 2021 harvest.

Source: Pulse Australia, GIMAF


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