Wednesday, May 27, 2015

AVOID PANIC ON PULSES-- FINANCIAL EXPRESS 25TH MAY 2015


AVOID PANIC ON PULSES



http://goo.gl/HP4gOu









SHORTAGES OF PULSES— GOVERNMENT SHOULD DESIST INTERVENTION. LET PRIVATE TRADE OPERATE.

CANADIAN YELLOW PEAS ARE THE ONLY RESCUE REMEDY.

TEJINDER NARANG

The Government has estimated (3rd advance estimates of Ministry of Agriculture) production of pulses in 2014-15 at 17.38 million tons vs 19.25 million tons of last year – a deficit of about 10%. This shortfall is close to 2 million tons and considering the world wide availability of imported origins—be it Myanmar, Canada, Australia, Ethiopia, Tanzania Malawi or Mozambique, Indian annual demand of 23-24 million tons can abnormally spike the world 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 million tons pulses per annum. But due to huge decline in domestic availability this year and rising consumption, import pull could be 5.5 to 6 million tons which could come at a huge cost. Sensing imminent drop in output, international bidders have already raised their CIF quotes between 8%-16% of various pulses in less than a month (see chart). This is indeed contrary to the trend of fall in agro-commodities prices by more than 20% in last one year. 



Sharp vertical movement in domestic prices are already reflecting the intensity of shortfall.  Chick peas (Chana) can be taken as the dominant and representative illustration of supply and demand mismatch during one year. Chickpeas price in NCDEX futures was about Rs 27/kg in May 2014 and about Rs 45/kg this year---increase of 67%. Similarly Urad (Black Matpe) and Tur (pigeon pea) prices have risen by 35% and 45% respectively on annual basis. WPI of the entire pulses complex on year to year basis in 2014-15 is up by 15% vs -1.64% in 2013-14.  


                

During 2006-11 GOI had mandated STC, MMTC, PEC, NAFED to import 1.5 million tons pulses per annum (or 0.375 mill tons or 3.75 lakh tons for each PSU out of which 50% were to be yellow peas) and distribute them in the market at a discount (subsidy) up to 15% depending upon the market conditions. A CAG report of December 2011 castigated these PSUs, Dept. of Consumer affairs (Ministry of food) and Ministry of Commerce for incurring a loss of about Rs 1200 crores (out of which about Rs 897 crores 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. CAG may be right in certain respects but the scheme was intended to make losses—that is to import at higher price and sell at lower price-- to hammer down the escalating local prices. But there are lessons to be learnt by looking at the rear view mirror for avoiding the erroneous approach in the future.          

The government must maintain hands off approach in the current scene because of unpredictability and volatility of pulses prices. The moment government intervenes in any commodity; it flashes a signal of shortage and induces bullishness in that particular commodity. If the central and state agencies start issuing bulk tenders of import of pulses, it is going to fire international prices because of poor surpluses in 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 Bazaar due to subsidization 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 the best prices. This leads to imported cargo remaining stocked and undelivered in the market for considerable length of time despite its availability in India. Encashment of performance bonds is no solution to rein 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, then 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 be to reinvent the wheel.

Both Chickpeas and yellow peas are vegetarian nutritional protein of 20-22% potency. India imports about 2 million tons of peas from Canada/Ukraine /France—the largest being Canada with annual production of 3.8 million tons. Indian trade has no alternative but to secure the major shortfall in Chickpeas by “adding” imports of about one million tons of yellow peas from Canada. Ukraine/France yellow peas are considered inferior by Indian trade. Moreover their availability is also limited. Yellow peas are priced at Rs 27-28/kg against Chana /Chickpeas cost of Rs 45/kg. Cheaper yellow peas will put downside pressure on expensive chickpeas and prompt substitutional consumption. 

Import of Chickpeas, Pigeon Peas(tur)and Urad (Black Matpe) from Myanmar , Australia and African countries cannot augment more than 0.5 million tons and that too at zooming prices. Total supply from Myanmar is 5.1 million tons of beans and pulses, while their domestic consumption is 3.5 million tons. Balance 1.6 million tons 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, packing etc with 75% recovery rate—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 from the Government is—do not panic and don’t indulge in bulk imports through PSUs or for the state governments. Accord priority to import vessels for unloading if there is port congestion. Do not insist on methyl bromide fumigation of cargos and facilitate entry with aluminium phosphide fumigants. Importers can operate freely only if there is no fear of other parallel channels with subsidised prices. Avoid enforcing any stock limits. Impositions of stock limits choke arteries of distribution and thus are counterproductive.
    






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