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Supply Glut Could Drag Pulses Prices below MSP and Uptrend in Sugar Prices Might Sustain on Lower Anticipated Production in India

Mr. G Chandrashekhar, Consulting Editor, Commodityindia.com

Supply glut could drag pulses prices below MSP

In recent times, policy makers in India have been deeply concerned over the rapidly rising pulses price. There was a steeper shortage of pulses in India because of El Nino related crop declines in 2014 and 2015. As a result, pulses prices started to rise rapidly creating huge consumer resentment. The Government was forced to undertake a number of intervention measures including imposition of storage control, suspension of futures trading, organizing imports through its parastatal organizations etc. None of these steps brought big relief to consumers.

The situation is now undergoing a dramatic change with near-normal southwest monsoon. Acreage under pulses in kharif 2016 has expanded by 40% compared to Kharif planting acreage of 2014 and 2015. With spatially and temporally well distributed rainfall, I expect a decent increase in the yield. So Kharif 2016 pulse production target of 7.25 million tons will be reached and possibly breached. Kharif 2016 pulses production in India will be at least one and half million tons more than that of last year.

Indian importers have made substantial commitment for import of various pulses from Canada, Myanmar, Australia and East Africa for arrival during September, October and November. My own estimate is that India should be receiving 1.5 million tons of various pulses in the next two months, from second half of September, into October and early November. There is likely to be a glut in the availability of pulses when domestic crops and imports combine to augment supplies. That situation worries me, not because we are going to have too much of pulses, but because we are going to have significant downside risk to pulse prices.

I already see the evidence of fall in pulse prices. The open market prices of pulses have certainly fallen with the wholesale prices falling much faster than the retail prices. Recently, when talking to pulse exporters from East Africa, I was told that they are willing to offer pigeon peas at $ 600 a ton. Six months ago, India bought pigeon peas at around $ 1200 a ton! Now, that is about 50% drop in price in six months! So, I expect a sharp decline in domestic price. Indeed, international prices have already declined which will soon get reflected in domestic prices.

On the other hand, to support farmers, the Government of India has raised Minimum Support Price (MSP) to INR 5,000 per quintal or INR 50,000 per ton which is good for growers. However, the price of Kharif pulses like urad, tur and moong is at the risk of falling below MSP. If price falls below MSP, then the GOI should step in and should start procuring pulses. The GOI did not conduct procurement operation in 2012-13 when chana prices had gone far below the then MSP of INR 3,000 a quintal.  

The GOI has instructed some of the state agencies to start procurement and I would be happy to see very large quantities being procured. I am also happy that my recommendation to GOI to start procurement of 10% of annual production of pulses - like it does in rice and wheat - has been accepted. GOI should distribute pulses also through the public distribution system. I am happy that there is some consideration at the highest level to this proposal and GOI will now begin to create buffer stocks of about 2 million tons.

I expect a substantial rebound in domestic production of pulses in 2016-17. Still we may import 3.5-4.0 million tons of pulses. This provides a great opportunity for India to open up pulses export. While pulses imports are free, exports are not, with the exception of Kabuli Chickpea. India must explore export market for all pulses. For this to happen, GOI should remove restrictions on export of pulses. Freeing pulses export is also one of my primary recommendations to arrest sharp price fall in domestic markets.

Uptrend in sugar prices might sustain on lower anticipated production in India

 Sugar production in India declined from 27 million tons to 26 million tons then to 24 million tons between 2013 and 2015. However, demand has been rising every year due to population pressure, income increase etc. In 2015-16, Sugar production in India dropped while demand (including export demand) surged thereby lowering stocks available within the country. Therefore, sugar prices have increased by 20-25%, since the beginning of 2016.

In 2016-17, the planted acreage under sugarcane in India has declined to well below the threshold level of 5.0 million hectares as compared with the previous year. Therefore, in 2016-17 sugar production is likely to decline further. There will be tightness in availability of sugar. In anticipation of this, GOI has taken several measures such as withdrawal of export incentives, imposition of storage restrictions on traders, sugar mills, etc. The supply tightness, may force India to import sugar to the tune of 1.5-2.0 million tons in 2017.

The world sugar market has already taken cognizance of the possibility of India’s potential import of sugar next year. So world sugar prices have begun to firm up. Commodity markets by their very nature don’t move based on current fundamentals; they move on basis of anticipated changes in the market fundamentals at a future point of time. Sugar market in India and outside has started to anticipate further tightness in the availability of sugar within India; and therefore prices have started to increase. The policy makers have to take a serious note of this emerging situation. Sugar is an essential commodity of mass consumption and has high weightage in the consumer price index. Therefore timely steps to ensure augmentation of supplies to meet consumer price expectations are necessary.

Mr. G.  Chandrashekhar, former commodities editor, The Hindu Business Line, is an independent director on the board of Foretell Business Solutions Private Limited. As consulting editor of CommodityIndia, Mr. Chandrashekhar would contribute a regular column on key trends shaping markets along with his recommendations for market participants. These views were expressed early-September 2016.  

 

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