by by VN Saroja
18th May 2020
The sudden shutdown of India beginning on 24th March 2020 at midnight that was renewed 3 times more, has impacted all the Ag commodity markets. In the first week, all markets were shut down and all transportation stalled. It was only on the 28th March, 2020 that notification came out where farm work, logistics and supply chain related to Ag Commodities were added to the list of personnel permitted to carry out their tasks during the lockdown. Over the weeks, more and more market operations were opened up but they have not reached the normal levels yet. Luckily, the seemingly slower spread of the virus in India delayed the harvest of the Rabi crop only by a week or so and now most of the harvest is in, despite labour, transportation and weather issues. However, all the APMC mandis are still not functional with only a quarter to third of the traders coming in to bid.Cases of Covid-19 are being found in the markets and supply chains remain patchy with disruptions brought by border travel restrictions between states and labour shortages.
Procurement of wheat and pulses by the government agencies has been delayed by one month, and is still to begin or is just underway with respect to Tur, China and Masur. However, with the promise of 3 months of free ration through PDS having been made by the government, we will see the government stocks deplete fast and procurement undertaken for replenishment of the stocks, irrespective of the prices being above or below MSP. Currently, prices are 2 to 5% below January prices, higher than expected for arrival season.
Where the uncertainty will come from is the impact of the virus on the global economy. All the pulses markets are going to see some interesting times in the coming months.
While Canada and US were expecting to start harvesting their Peas and Lentil crops by the end of this month, the degree of disruption in shipping and logistics due to the Covid19 pandemic is not yet completely known and now looks like it will continue until the end of 2020. India imports close to 650,000MT of Lentils and 600,000 MT of Pigeon Peas (tur) and 250,000 to 350,000 MT of Black Gram (urad), and 150,000 MT of Green Gram (moong) each year and there could be a disruption in the same this year, depending on how long the virus affects shipping and transportation in general.
Domestic availability of Chickpeas is expected to be good (12 to 13 MMT) , with the crop being larger than last season. However, Black Gram (urad) and Green Gram (moong) are both expected to be a smaller crop (3.1 and 2.6MMT respectively) and with any import disruption, the availability is very likely going to be patchy and uncertain. While the government has enhanced the import quota for urad to 2.5lakhMT and extended import timeline to 31st May-2020 , the real question is does the global markets have enough stocks to supply India. Since currently there is very little trade in the markets due to the mandis being semi functional, the real picture may only emerge in June.
Pigeon Pea (tur) and Lentils (masur) were expected to stay in their range since no import disruption was expected and fresh arrivals were due but there is now a weaker market demand due to free distribution of pulses among common public despite the crop size being better this year for all pulses. Now it looks like, only if the markets stabilise and supply chain disruptions end, will the prices stay in range, else the prices will depend on what plays a greater role, the collapse of demand or the low stocks.
However underpinning all of this has been the demand being stable. But with this pandemic that may also be difficult to estimate. On the one hand, the government is issuing one kg of pulses for free through PDS for 3 months. This is expected to increase the offtake of pulses from the government stocks and may be from private stocks too if they run short. Consumption by those not covered under PDS is normally expected to stay stable, but in lockdown scenarios, consumption habits may change and this is our first experience of such a scenario.
The sudden shutdown led to innumerable street vendors and labourers based in urban centres, losing their livelihoods (some without receiving their pay that was due too) and the uncertainty of the times has led them to begin moving back to their native places. The Indian rural economy that was already plagued with high unemployment and underemployment, is going to see things worsen. Very many of them have suffered a lot in the past 40 days and may take a lot of time to trust the labour market again and return to urban centres. This has led to decimation of demand of commodities and services and will take a toll on the supply side too wherever labour is an important input. Whether the rural community manages to sell crops or consumes it to survive, was not a factor we considered a few months ago but will need to be considered now.
In urban centres, availability of fresh foods/ horticultural produce/ dairy would continue to get affected which would increase the demand for pulses. Disruption of supply chains will continue to affect meat and poultry considerably more than it will pulses given the volume of the animals, and rumours of meat being the vector for the virus are already affecting the demand for them. This is another factor to watch on how this market plays out and its impact on the pulses market. Prima facie, consumption of pulses is increasing as offtake from mills is comparatively higher at this point of time.
On the other hand, if it takes time for supply chains to get back to normal, retail prices of pulses will shoot up in places where the stocks could not be distributed, irrespective of the existence of stocks in the country. This will decrease the demand depending on how long and how much and in how many places the shortages show up. The government has indicated that it may not intervene if prices go up, by removing the Essential Commodities Act for cereals, pulses, oilseeds, potatoes and onions. While it has announced a massive package of Rs 1lakh crore for Ag infrastructure and 10,000 crores for micro food enterprises, the modalities and timeline for the delivery of these will be crucial to the impact they will have on the markets.
The availability of labour on the farms and in the supply chain will depend on the number of months that India stays impacted by the virus and how soon a vaccine or cure is found. Should there be labour availability issues, the sowing and harvesting of the next crop of pulses in Kharif (which contributes 40% of the Indian domestic production of pulses) will also get affected. The silver lining here is that pulses are hardy crops that require little tending. For years, farmers grew them on unirrigated untended land. Over the years, farmers have moved to being more systematic and scientific in growing pulses, and governments have made a push to get them to allocate more land and effort on pulses. That would likely stand us in good stead in these difficult time.
- V N Saroja is the Chief Strategy Advisor at Indian Agribusiness Systems Ltd. (Agriwatch.com)