India’s pea import duty best addressed by closer ties

There is justifiably much concern about India’s sudden decision to impose a 50 percent import duty on peas, leaving Canadian farmers wondering what hit them. While the size of the duty — rather than the policy itself — was a surprise, this is how India works.

The government is using import duties available to it under World Trade Organization rules to bolster its push for self-sustainability in some agricultural products. Wheat, vegetable oil and soybeans are also being hit with higher duties, albeit not at the level as peas.

It’s easy to see why this is a shock to Canadian exporters. Canada ships $1 billion worth of pulses to India annually, and India is the largest market for Canada’s pea exports. There is now fear that lentils may also be targeted for import duties.

India changes its policies to accommodate crop sizes — often determined by monsoon seasons — and to address its domestic politics. (The U.S. could do so as well, if President Donald Trump gets his way in the North American Free Trade Agreement talks.)

Canada also faces fumigation fees for pulses that result in higher costs, which looks suspiciously like a trade impediment since the pest in question doesn’t exist here.

Canadian yellow pea prices have dropped 25 percent since India’s announcement, and several shipments were already en route, so they could be subject to the new duty.

There have been calls for Canadian officials to howl from the hilltops to broadcast their wrath to India, but screeching voices won’t carry the day. Public Safety Minister Ralph Goodale, who is from Saskatchewan, said Canada is raising the issue “aggressively” with India, and he expects Prime Minister Justin Trudeau to do so as well.

Canada and India have been working on a trade agreement since 2010. The Comprehensive Economic Partnership Agreement, presumably, would help to address this kind of thing in the future. There is a fair amount of communication in trade between India and Canada. Agriculture Minister Lawrence MacAulay was in India earlier this year, and three senior ministers visited just after the import duty on peas was announced.

India produced a record pea crop last crop year, and this year’s production is expected to be similar. With such abundance, prices were falling below the minimum support price for farmers, hence the import duty to keep Canadian peas out of the Indian market.

It’s short-term thinking. From 2013-15, the value of pea exports to India increased 40 percent to $547 million, in part because pulses are becoming more popular with Canadian farmers, and India faced difficult monsoon seasons that damaged crops.

Now it looks like Canadian farmers will plant 30 percent fewer acres of peas next year. Those acres will likely go into other crops, leading potentially to oversupply that will hurt Canadian farm incomes.

If India’s monsoon disappoints next summer, hurting crop yields, it won’t be able to turn to Canada to top up its supply. Prices of the staple food will rise, hurting the poor.

The market will eventually play a role in addressing India’s behaviour.

Regardless, it is a challenge to trade with a country that acts in such a mercurial manner, but the opportunity presented by trade with India is too tempting to ignore. India’s economy is growing so fast, about 7.2 percent this year, that Canadian farmers saw an opportunity to meet the growing demand for pulses.

Canadian officials can howl about import duties if they want, but deepening our relationship with India — especially through a trade agreement — will have the better outcome.

Bruce Dyck, Barb Glen, Brian MacLeod, D’Arce McMillan and Michael Raine collaborate in the writing of Western Producer editorials.

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