Back in December the Indian government imposed a 30 per cent chickpea and lentil tariff on imports, which would affect many Australian growers. As of March 1st, the tariff was hiked up to 60 per cent. The latest rumours are tipping that it may increase again, anywhere up to 100% in coming months. Headlines have cried a crisis on the Australian chickpea and pulse industry at this devastating blow and lost market.
While this is a significant setback to Australian chickpea, pea and lentil growers and traders, particularly for the 2018 season, the larger concern should be focusing on the state of agricultural production in India and what this might mean in the long term.
India has been in an agrarian crisis for much of the last 20 years. Farming has become largely unviable, with many in debt and as a result suicide rates in the rural population are unimaginably high. This has received very little attention in western media until recently when 50,000 farmers marched to India’s financial capital, for 6 days, 180 kms, barefoot in protest. Agriculture accounts for less than 15% of India’s GDP but is the predominant source of livelihood for nearly half the population.
A whole range of problems have led India’s agricultural and rural sector to the current state of being, including:
- Shortage of cultivable land (the land-man ratio is less than 0.2 hectares of cultivable land per head of the rural population).
- Land prices have been artificially raised through land acquisition laws.
- Back-to-back droughts and fall in commodity prices since 2014.
- Soaring prices of farm inputs.
- Inadequate supply of agricultural credit forcing dependence on alternative lender sources.
- Lack of promised government farm loan waivers.
- The governments’ procurement of food grains under the minimum support price (MSP) has largely been unsuccessful at providing the needed level of protection.
- Real investment in agriculture has declined at 2.3% per annum between 2013–14 and 2016–17.
The above issues have led to a sharp deceleration in farm income growth from 7.5% per annum between 2004/05 and 2011/12 to 0.44% between 2011/12 and 2015/16. The minimum cost of living for the average farm household in India is A$130 per month, while the average rural household now earns A$60 from farming. This has been further exacerbated by a decline in wages in rural areas for the non-farm sector.
The protest has finally placed enough pressure on the government (which is now in election mode) to address the issues and promise change. However, much like the farmers March, there is a long road ahead.
The introduction and subsequent rise of import tariffs is a quick response support measure to provide short term relief to local producers. In turn, this is hoped to favour votes for the upcoming election.
Two failed monsoon seasons in India pushed pulses into a two-year cycle of low production and failed crops, opening the void for large volumes of imports to fill the demand. This year’s crop (currently being harvested) expects above average yields and policy intervention was deemed the best solution by government to prevent a local price crash. The much-desired price rise is yet to come to fruition, with India’s local prices still under pressure and currently lower than the Minimum Support Price due to hanging oversupply.
While the introduction of the tariffs caused prices to fall overnight in Australia, the sanctions are very unlikely to remain as a long-term strategy of the Indian government. With the high-risk production environment in India and a supply-demand gap, it is inevitable that they will be unable to meet their domestic consumption demands alone over the long term. With India’s forecast population growth and recommended intake of 40g per capita/day, the country would require 39 million tonnes of total pulses by 2050, which will need local pulse production to grow at an annual rate of 2.2%
This in itself, highlights the risk of such policies. The reaction on our own shores from Industry bodies has been to suggest that growers take this change in global markets into consideration and look to rotate out of pulses or reduce their plantings next season. If Australian growers heed the warning, we are likely to see domestic production of these crops reduced.
But what happens when it all turns around again? What’s left of trading and supply chain relationships with India may be fragmented. If India were to return to a year of drought similar to 2015-16, deplete their stockholdings and be forced to reduce or remove the import tariffs, they may very well be met with a closed door and ‘sold out’ sign. A dangerous prospect for a country so dependent on pulses in the diet.
There are a multitude of supply and demand ‘unknowns’ now meaning a volatile market for pulses. The risk for Australian producers planning to maintain their planting area next season is that demand will be limited. However, if the Indian tariff was to be removed they could be rewarded by very attractive prices. The only certainty is that the fate of the pulse market is held largely in the hands of India and the measures they take to resurrect its agricultural sector.