One of the biggest buyers of Canadian pulses says the days of big premiums for desi chickpeas are long gone.
Peter Wilson, president of J.K. International Pty Ltd., said India, which he described as the engine room of the pulse industry, has curtailed its purchases of chickpeas in favour of another crop.
“The yellow pea has essentially cannibalized the desi chickpea market,” said Wilson, at the recent Processing for Profit conference in Saskatoon. Wilson’s Australian company has a large Canadian operation.
India has one billion citizens who generate a gross domestic product of about $2,900 per capita. Yellow peas are a cheaper substitute for chickpeas and have really caught on in that poor country.
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“We’re wondering where we are going to go on holidays. These people are concerned whether they’re going to put food on their table,” said Wilson.
India accounts for one-quarter of the world’s pulse production and 30 percent of global pulse trade, so when the hungry lion roars, traders would be wise to listen.
Wilson estimated the gap between what India’s pulse farmers produce and what its citizens consume as two million tonnes in 2003.
That gap will widen to 4.5 million tonnes by 2010 according to the Indian government, despite its best efforts to encourage domestic pulse production.
“The demand in the future is real and it’s deep,” Wilson told processors at the Saskatoon meeting.
Western Canada has what he called the Rolls Royce of pulse processing sectors to service that growing demand, which is a bit of a mismatch.
“You can’t build a $5 million facility and say, ‘Yep, I’m going to crank out lots and lots of high-priced product to poor people.’ “
He said the Saskatchewan special crops processing sector is overbuilt in both the quantity and quality of facilities scattered around the province and it’s time for some of those plants to rethink their business plans.
For some firms, that means recognizing their strengths and focusing on doing a really good job of making one niche product rather than cranking out high volumes of what everybody else is selling.
Businesses have to realize their competition extends beyond fellow processors.
Line companies can easily switch from handling wheat and canola to processing peas if the economics are there.
If that happens it could be a big blow to the industry because 80 percent of special crops firms rely on handling peas, according to Saskatchewan Agriculture.
“There is a whole lot of other assets that can be opened up to compete with them,” said the flamboyant Australian in an interview. “You can’t just sit there thinking, ‘I’m very happy here in my dung heap and no one is going to worry me,’ and suddenly Agricore opens the door across the road and starts taking in yellow peas.”
Despite all the warning signs, people are still talking about building new pulse plants on the Prairies. Those investors need to realize that while it’s easy to get equity for hard assets, it is becoming increasingly difficult to secure working capital from lending institutions.
And once they are up and running they will quickly find out the competition in the Canadian special crops sector is intense.
“Margins have been under pressure for quite some time,” said Wilson.
