India pea duty slashes prices

Yellow pea prices have plunged in the wake of a dramatic policy change in India.

The Indian government imposed a 50 percent import duty on peas last week without any prior warning of its intentions.

Companies that are still bidding on peas have dropped their price to about $6 per bushel, down from $8 the previous week.

Canadian pulse exporters are suddenly faced with the daunting task of trying to find a new home for a big portion of the 3.9 million tonnes of peas growers harvested this fall.

India typically accounts for about 40 percent of Canada’s pea exports.

An exporter who requested anonymity said the immediate concerns are the peas in transit to India and the shipments sitting in Indian ports waiting to be unloaded.

“A lot of afloat parcels (are) looking for a home, and the obvious place to dump is China, but they see the flood coming and will stand back,” he said in an email.

The exporter said the 2017-18 supplies that need to be diverted from India to other markets are too large for China’s traditional fractionation market but could find a home in China’s vast feed market.

“The feed market is significant and that becomes the floor, probably $6 to $6.50 per bushel,” he said.

“Chinese imports can likely increase if growers support those levels.”

Stat Publishing is now forecasting one million tonnes of pea carryout in 2017-18, up from its earlier estimate of 300,000 tonnes. Stat believes Canadian farmers will plant one million fewer acres of peas next year.

Lee Moats, chair of Pulse Canada and a farmer from Riceton, Sask., said growers are in “shock and disbelief” over news that the Indian market has evaporated.

“It was not entirely unexpected that there would be some tariff action but going from zero to 50 percent all in one shot is kind of unprecedented,” he said.

Chuck Penner, analyst with LeftField Commodity Research, was surprised India targeted peas because there is no government minimum support price for that crop.

He thought India would go after lentils and chickpeas and that’s still a distinct possibility, depending on how many acres of those crops are planted during the rabi or winter crop.

So far, Indian farmers are seeding the rabi pulse crop at a pace that is well ahead of the long-term average.

“That’s not looking good,” said Penner.

“Buyers here have already backed off on their red lentil bids because they’re afraid of holding supplies in case something like (a duty) happens.”

Stat Publishing reports that red lentil bids were 17 cents per pound as of Nov. 10, down from 21 cents the previous week.

Penner said there is more potential downside with green lentils than reds because the reds have already been discounted.

India still has supplies left over from its record-shattering 2016-17 crop, and the 2017-18 kharif or summer crop that is being harvested is estimated to be the second biggest on record.

The plethora of pulses has pushed prices for some crops in India below the government’s minimum support price, which is a political embarrassment.

Some have suggested the blocking of imports is an attempt by the government to boost prices and sway the farmer vote for the next general election in 2019.

Moats said India’s policy is shortsighted because yellow peas are the cheapest pulse available for cash-strapped consumers. As well, he pointed out that next year’s monsoon might be disappointing.

“What happens in the longer term when Canadian production isn’t there when India is experiencing a shortage?” he said.

Pulse Canada chief executive officer Gord Bacon was taken aback that India would impose the maximum duty allowable under World Trade Organization rules. India has applied duties in the past but they were 10 percent.

“India was our biggest market, and this presents an enormous challenge,” he said.

Canadian exporters are already paying what amounts to a three to five percent duty in the form of increased inspection fees related to India’s fumigation policy.

He said there is no way exporters will fully absorb the 50 percent duty, which means lower prices to Canadian farmers and higher prices to Indian consumers.

Bacon agreed that Canadian yellow peas will likely make their way back into the feed market, which used to be the primary export market before India started buying the crop for human consumption.

“We are also working on the grinding of peas into flour and we have a lot of global surplus capacity in milling, so there is the potential to move some of this quickly,” he said.

Bacon said the duty on traditional pulse exports is happening at the same time that a new source of demand for peas is emerging in the form of fractionation plants.

Four companies have announced plans to build fractionation plants in Western Canada. One is already operating in Vanscoy, Sask.

“The future is unfolding in front of us. We have reason to think this isn’t the end of the pea industry in Canada by any stretch of the imagination,” he said.

Moats said Pulse Canada needs to do everything it can to accelerate fractionation projects such as the Roquette plant planned for Portage la Prairie, Man., which will consume up to 250,000 tonnes of peas annually starting in 2019.

“Wouldn’t that be great in the environment that we are in right now?” he said.

Bacon said the duty issue will be front and centre this week during a trade mission to India led by three of Canada’s federal ministers, which was planned well in advance of the duty announcement.

Immediately after the Indian trade mission, Bacon and Moats are flying to China to meet with food companies about incorporating pulses into cereal and meat products.

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