Agri Business

Chana price spurt will send positive signal to growers

G Chandrashekhar | Updated on November 13, 2018 Published on November 13, 2018

Is the chana (chickpea) market turning? After languishing for a long time below the psychological ₹4,000 a quintal mark, chana prices on the futures platform have risen by over 10 per cent in recent days to ₹4,600 a quintal.

Both supply side and demand side factors are at play; and the price rise is actually good news for chana growers currently planting the crop.

The spot market is currently trading at around ₹4,300 a quintal, but is expected to soon breach the minimum support price (MSP) of ₹4,400 and start to test the ₹5,000 mark. This is not at all surprising as crop production realities are beginning to bite.

The government’s chana production figure of 11.2 million tonnes for 2017-18 is believed to be overstated — over-estimated by about 15 per cent — while the actual harvest size could be closer to 9 million tonnes. (See Commentary: Business Line August 22).

Restrictions on import (customs tariff on chickpea; and quota plus tariff on chana’s cheap substitute yellow pea) have also meant limited access to imported material. As a result, about 2 mt of yellow pea demand has shifted to domestic chana.

At the same time, demand during the traditional festival season in the country has contributed to commodity consumption.

No wonder, availability is getting tighter, and the situation can potentially get worse in the weeks ahead. More important is the fact that the market is beginning to believe the upcoming harvest in March 2019 would be lower than that of the previous year given poor subsoil moisture conditions and the threat of El Nino, which will reduce precipitation.

Preliminary planting data for chana (gram) as of November 9 are not at all encouraging with 2.7 million hectares sown, down by a third from 4 ml ha this time last year. It may be easy to dismiss this as early days, but what if the trend holds?

Silver lining

The bright side is that the recent rally is a positive signal for chana farmers. They should feel encouraged to plant as much as feasible. At the same time, it is also a relief for policymakers, who are struggling to prop up low prices through procurement and other means. There will be no need for the government to intervene in case of a market driven price rise above MSP.

It is important that publicly held stocks with agencies such as NAFED (estimated to be about 2.5 ml t) should be liquidated in a calibrated manner over the next three months so that the positive price sentiment is not disturbed.

Traders are still wary of building inventory as the memories of terrorising raids and confiscation of stocks in 2015-16 have not faded.

The Agriculture Ministry’s production target for chana for 2018-19 is 10.5 mt. What if the final planted area for chana falls well short of nine ml ha and weather impacts yields? There is a risk the production target may be missed. In the event, one can expect a massive price rally, which New Delhi may find tough to control quickly.

In the event, the government may be forced to review the extant restrictions on imports and possibly roll back tariffs to contain uncomfortable price escalation, especially with elections around the corner. The situation needs close monitoring.

The writer is a policy commentator and global agribusiness specialist. Views are personal

Published on November 13, 2018
This article is closed for comments.
Please Email the Editor