Currently Chana in the physical market is trading way below its Minimum Support Price (MSP) mainly over high supply, an improvement in imports and larger buffer stocks with the government. National Agricultural Co-operative Marketing Federation of India (NAFED) currently has a stock of about 13 lakh tonne of Chana procured last year.
For Rabi crops this year, the government declared an MSP of Rs 4,620 per 100 kg, but till now, it has procured only 7.75 lakh tonne against the procurement target of 23.8 lakh tonne. Last year, it procured close to 27.5 lakh tonne during the whole season.
Chana prices slipped about 10 percent in June from the 2019 peak of Rs 4,600 per 100 kg to currently trade at Rs 4,250, due to sufficient stock in the physical market as procurement by government agencies was slow as compared to last season. The availability of Chana in the open market is higher due to good production last year, coupled with an increase in imports in 2019.
Last year in July, due to higher procurement of Chana from the farmers at MSP as prices jumped more than 20 percent to about Rs 4,300 per quintal, NAFED has procured 27.4 lakh tonne as on July 3, 2018 from the states of Maharashtra, Karnataka, Rajasthan, Telangana, Gujarat, Andhra Pradesh and Madhya Pradesh.
During the first 4-month of current calendar year, imports of Chana is on the rise, while exports have gone down heavily. According to data published by the Commerce Ministry, imports have increased by 120 percent to 67,684 tonnes during February to April period, as compared to 30,750 tonne last year. On the other hand, exports were down by about 58 percent during same period.
However, in FY19, the imports were down 81 percent YoY to 185,947 tonne, due to higher import duty of 60 percent on Chana. Last year, it was mostly imported from Sudan, Myanmar and Tanzania, although Australia was the single largest source for India in the previous years.
Chana production in the country has increased over the last three years due higher MSP declared by the government. Its MSP increased from 3,500 in 2016 to Rs 4,620 in 2019, which is about 32 percent hike in last three years.
Chana futures are currently at the same levels as last year but the average trading price during the first half of current calendar year was about Rs 4,300 compared to Rs 3,650 during same period last year. The prices have been higher this year due to less import of yellow pea, which acts as substitute in the Chana flour. Imports of yellow pea down by more than 70.4 percent to 8.51 lakh tonne in 2018/19 compared to 28.77 lakh tonne in previous year.
Chana stocks in the country is higher due to higher production last year despite drop in imports (higher import tax) and extension of quantitative restriction on yellow peas. Moreover, slow procurement progress by government for the new season crop is keeping the farmers’ stock levels higher.
The arrival of Chana is expected to decline gradually in coming months due to lower prices than promised by government. Going forward, its prices may trade positively as government expected to increase procurement volumes.
There are expectations of further hike in MSP for 2019/20 season and continued quantitative restriction on yellow pea imports will support prices. Import restrictions due to higher import duty, no decision on further imports under concessional import duty and expectation of further export incentives may keep prices to move higher towards 4,800 rupees in physical market in next 3-4 months.