Exporters in Canada, the US and other origins are upset with Indian importers, many of whom have reneged on contracts, the estimated quantum of which is about five lakh tonnes. In some cases, exporters have been forced to renegotiate the contract price at lower rates. Legal disputes and arbitration proceedings against defaulting Indian parties are not ruled out.
A sharp rise in prices of pulses witnessed in the early part of the year encouraged many importers to book orders several months in advance (in April-May-June) even without a clue about the crop prospects at home and abroad.
It is estimated that about 2.5 million tonnes worth of deals were struck for shipment during the last quarter of the current calendar year. Clearly, a sizeable part of the contracts were speculative in nature with unfounded hopes that price performance will benefit the import trade.
Much to the consternation of traders, after July, the market outlook underwent a dramatic change with all major origins including India — the world’s largest producer, importer and consumer of pulses — planting record acreages and harvesting record crops. This resulted in a collapse of market prices, especially export prices.
For instance, pigeon pea (tur/arhar) rates plummeted from $ 1,100 a ton early this year to around $650/tonne by August. Rates for India’s favourite, yellow pea, corrected down from $380 to $300, especially after Russia and Ukraine began to offer lower rates, undercutting Canada.
Record acreage
Meanwhile, India planted crops over a record acreage — nearly 15 million hectares — and with a fairly well-distributed South-West monsoon, a record harvest of 8.7 mt of kharif pulses resulted. No wonder domestic prices have seen a sharp downturn. After bullish expectations went awry and panic seized the Indian trade, contract default was no surprise. Defaults have upset overseas exporters.
A delegation of the Global Pulse Confederation — apex body of the international pulse industry and trade — met with senior government officials in New Delhi mid-October to discuss the issue of contract default, among other issues, that affect smooth flow of goods into the country. “The delegation demanded fair and transparent trade in pulses,” said a person familiar with the development.
It is widely believed that contract defaults and forced renegotiation of prices has sent negative signals about India to the world market and hurt the image of the trade and country at large.
Unfortunately, the government has no clue about developments in the global market and their impact on India; and the government has even less knowledge about forward contracts — often speculative in nature — entered into by Indian traders.
One way to address the issue is to make registration of import contracts mandatory. The Directorate General of Foreign Trade (DGFT) may be tasked to act as the pulse import contract registering agency. Such a registration exercise would help the government monitor the quantum of contracts entered into as well as monitor arrivals into the country.
This will facilitate proactive policy making, instead of the knee-jerk responses that we see often.
It is necessary for policymakers to learn from the ‘dal shock’ of 2015-16 so that such a crisis is prevented. The current boom in domestic production and consumer-friendly prices should not lull them into complacence.
Source: http://www.thehindubusinessline.com/