The Slowing Pulse: India’s Trade Policies Adding to Pulse Exporting Dilemma

India has been a traditional producer and consumer of pulse crops for centuries. In 2016/17, India accounted for almost one third of the global acreage in pulses, produced about one fourth of the world’s total, and consumed approximately one third of the world’s pulses. Aided by population growth, the demand for pulses has been growing in India, and given ongoing low prices and existing trading contracts, import levels remained high – India accounted for 40% of total global pulses traded in 2016/17.

In the past 15 years, countries like Australia, Canada, the US, and Russia took large-scale initiatives to increase their domestic pulse production, while consuming very little. This was seen as a great step to balance the global supply and demand scenario, where non-traditional surplus-producing originations took care of global pulse trade to the traditional consumer countries such as India, which faced a deficit following poor domestic supply. Canada and Australia in particular excelled in their trade efforts – supplying a large portion of India’s domestic demand of yellow peas and chickpeas. Similar efforts were made by East African countries to increase their pulse production in past couple of years, hoping to capture market share from the world’s biggest pulse importer, India.

A poor southwest monsoon in 2014 and 2015 resulted in lower-than-expected pulse production in India, and triggered the need for big imports. Soaring domestic prices and increased food inflation in these deficit years prompted GOI to work on various corrective measures including taking initiatives on providing incentives to growers, and ensuring better distribution of quality seeds facilitating a better seed replacement ratio. Helped by a supportive monsoon and GOI’s efforts, India’s domestic production witnessed a giant leap in 2016, to reach 23 million tonnes (vs. 16.4 million tonnes in 2015/16), and 2017 production is expected to be further up, at 24 million tonnes. Until late 2017, imports into India remained unrestricted, which, in combination with the very large domestic crop, resulted in a domestic supply glut. Indian farmers suffered not only because of plummeting prices but also because of a lack of procurement infrastructure in major producing states.

From August 2017, GOI has been on a self-correction trajectory. India put tariff restrictions and duties on pulse imports in late 2017, and increased these further in early 2018.

Recent actions by the government of India have sent shock waves across the global pulse trade industry and re-affirmed India’s role as key driver of this trade. Import duties were introduced for various pulses and further increased in 2018. Several exporting countries have shown their concern about India denying them market access without any prior notice.

Government intervention through tariffs seems like a temporary solution. However, current import duties are high enough to prevent further imports and are expected to stay as long as India’s domestic supply surplus prevails – deepening the dilemma of lost key destination markets, which major exporting countries like Australia and Canada are facing today. India’s domestic demand for pulses is expected to continue to grow in the coming years, with further income growth in the lower to middle class population. At the same time, India’s domestic supplies of pulses will continue to remain largely dependent upon the monsoon. So while the exporting countries have raised questions about India’s recent decisions in the WTO, it is highly likely that India will keep the duties in place for much of 2018 and may only be forced to remove the import restrictions if the 2018 monsoon turns out to be below normal. The turnout of the monsoon, however, and its impact on the next pulses crop will only be seen in late 2018. Until then, it will continue to surpress global pulses trade volumes and keep pulse prices in exporting nations under ongoing pressure.

Author: Rohit Dhanda