For several recent seasons, the market of pulses in Russia continued developing fast, first of all due to high global demand. According to the latest report by IGC, Russian traders will be able to export nearly 1.27 mln tonnes of pulses in the current year, against 1.24 mln tonnes in 2017. However, despite the shipments growth, the “Indian factor” has led to the shift in the export flows of Russian pulses, and traders faced the necessity to search new channels of distribution. The main tendencies on the global and Russian markets of pulses and the most perspective channels of distribution of the products were the topics of our interview with the Head of sales department of Grainrus LLC, Sergey Pluzhnikov.
— Sergey, how do You estimate the start of 2018/19 MY in terms of peas and chickpeas in Russia on both export and domestic markets? How do You estimate the quality characteristics of pulses in the current year?
The beginning of the current season for chickpeas was rather fine. In August, Russian has already shipped nearly 17 thsd tonnes, which is only 3 thsd tonnes less year-on-year. However, taking into account that the production of the crop increased twice, this number is not as impressive. It should be noted that the exported goods in August were of old crop due to the necessity to sell the old stocks of pulses.
The trading activity on the domestic market of pulses this MY is high enough due to the strong demand of the livestock and poultry. Thus, in my opinion, in the second halve of the season the prices for peas will increase sizably on the domestic market.
If we speak about the quality of the crop in 2018/19 MY it cannot be estimated as good, poor or average. The issues vary from farm to farm and even from field to field. For example, the excess of the grains of different color in peas is not critical for the processors, but negatively affects the exports prices. It is even more important for chickpeas. Unfortunately, the issue of the chickpeas quality this season is rather difficult. The reason is the strong growth of the production of pulses in Russia for the last seasons. The producers decided that the upward price trend that started in 2014 would continue further and increased sharply the area planted under pulses. But the quantity did not transform to quality. It should be noted that the increase of the planted area for chickpeas was observed not only in Russia, but also in Canada, Argentina and Turkey. Nevertheless, the quality characteristics of chickpeas and the timeline of the crop cultivation in these countries are far beyond the Russian.
— India, which is the key global importer of pulses, imposed the 60% import tax on chickpeas and lentils. To what extent did it influence the global and Russian markets of pulses this season?
It has been almost a year since the Indian factor compelled the attention of traders all over the world. The absence of the main buyer ruined the plans on the market. At the same time, there is an impression that the Indian producers are not very fond of the exponential production growth. The debt load of the producers is very strong, thus each farmer tries to receive the maximum profit out of the hectare when planning the crop rotation. Herewith, for the second consecutive year the reliance on the cost-effectiveness of the import substitution project does not work out.
Thus, the excessive global stocks of pulses just wait in the wings or are distributed to other countries. In particular, there is a higher demand on lentils from Turkey, and there are some requests from Pakistan and Europe. The trade business is one of the most flexible in terms of reformation.
— In the beginning of October 2018, the government of India decided to extend the import ban on peas until December 31. How would it influence the global trade and trade flows of pulses?
You are absolutely correct — it will result in reallocation. Last year the main volumes of peas were targeted in India and this year — in Europe (due to the crop decrease) and Pakistan. The statistics is very illustrative: if in August of 2017 the export totaled 162 thsd tonnes, of which Europe imported 33 thsd tonnes, and Turkey and India together bought 76 thsd tonnes, but in August of 2018 there was observed the upward trend of shipments to Europe. In particular, this year in August the export of peas reached 194 thsd tonnes, of which Turkey and India bought only 38 thsd tonnes and Bulgaria, Germany, Spain, Italy, Norway and the UK bough 106 thsd tonnes which is 3 times higher year-on-year. Basically, the Russian traders could export more peas but the domestic market and the other countries activity made adjustments. For example, Ukraine shows the high effectiveness of the peas production, and sells the products at the prices 220-230 USD/t in terms of CIF Turkey. The quality of Ukrainian pulses this year is high and the performance of the phitosanitary and quarantine bodies is very efficient. Thus, taking into account the growing freight rates and the phitosanitary policy the ships can stand by at Russian seaports for 5-6 days and the competition from Ukraine is very strong.
— What in Your opinion are the main obstacles for the growth of production and exports of Russian pulses?
Two core elements of trade are quality and price. In 2014, the chickpeas with 10% content of spoiled grain was easily exported to India. This year the buyers have much of a choice: Turkish, Argentinian and Canadian farmers that produce pulses for a long time show stable high quality of products. It is a challenge that we must accept to hold a distinguished position on the global market. Traditionally, Russian chickpeas is traded with the discount on extended discourse as “well, you understand that Russian quality leaves much to be desired. And no matter how patriotic we are it is the truth.
I met with the originators of the modern varieties of chickpeas and they are puzzled about the reason the producers do not transfer to the more productive varieties of chickpeas and do not count on the large-fruited varieties. We in a Volga region distribute the seeds of the variety Zoavit and Bonus. They are more demanding in terms of cultivation and attention but these investments pay off.
The second moment is the preparation of the fields. The weeds and sunflower seeds shedder can wipe out all several months’ efforts. During the field inspections of the farmers, with whom we have established contract manufacturing, we constantly pay attention to the importance of the fields preparation for the chickpeas cultivation. And year after year it pays off. Our Jordanian and Pakistani buyers that we often invite for the meeting with the producers express the high satisfaction by the quality of the raw materials that we process and export.
— What countries-importers are the main buyers of Russian pulses? What volumes of the crops were exported from Russia in 2017/18 MY? What are Your forecasts regarding the shipments volumes in 2018/19 MY?
In 2017/18 MY, the general exports of pulses totaled 1.6 mln tonnes, including 149 thsd tonnes of chickpeas and 138.8 thsd tonnes of lentils. Turkey was the main importer of Russian pulses, and purchased 515 thsd tonnes of the crop, followed by India — 277 thsd tonnes, Spain — 156 thsd tonnes, Bangladesh — 145 thsd tonnes, and Pakistan — 132 thsd tonnes. The volume of pulses re-exported from Turkey is unknown.
— In Your opinion, what pulses have higher cost effectiveness and perspectives?
It is very difficult to answer this question. For example, this year chickpeas in the Volga region are not seen as the main driver of the profitability. It is rather a good background for wheat. However, for example, in September of 2017 the range of producers of chickpeas in Saratov oblast actively sold the pulses by the prices reaching 46`000 RUR/t, due to the low prices for wheat, resulted in record crop that was not in demand at 4`500 RUR/t. In particular, receiving 46 mln RU having sold 1 mln tonnes is an excellent support in the beginning of September. Of course the farmers are disappointed that second year in a row the price for pulses in the seaports is set at 22`000 RUR/t, but still it is the profitable crop. Next year those who wanted to produce the crop and failed would leave the market, which will support the market, because the production of the low quality product is the poor business.
At the same time in Central region of Russia, farmers declared good quality of peas. In Oryol oblast, the yield reached 4 t/ha, which is not standard but rather common figure. The crop is perfectly integrated into the crop rotation and has a high and stable demand from both the domestic and foreign markets. For the current moment, the price for peas is declared usually at 10`000-11`000 RUR/t in the Central Federal District, and in 2019 it may increase.
— What are Your expectation towards development of the market situation (price, trade) in terms of pulses in Russia, in the short term perspective, and in the second half of 2018/19 MY?
This is the most frequently asked question of the producers. I believe that in the second half of 2018/19 MY we will witness two things.
Since the start of 2019 the market will be overloaded by the old and new crop chickpeas. The supply will be higher than the demand. And this will be the main advantage of the importers. The best option would be to sell the product by equal parts during the year. Of course, in this case there would not be any price hikes but it is possible to average the prices and lower the ending stocks. It is a business and not the casino and if your business model is based on the considerations to hit jackpot every year, I believe it to be utopia. The market volatility is inevitable and the majority of the farmers understand it. Thus, the market will regulate everything. The plated area will fall from the record 620 thsd ha to usual 350 thsd ha and the price will react.
If we speak about peas, I believe that the demand on the product will be increasing and the winner — the domestic or the export market — is unknown. The balance of power can be changed by the tax on wheat, if ever taken. Then, the choice between the cheaper wheat and more expensive peas would be not as obvious.
— In conclusion I want to thank You for the informative talk, and also I would like to ask You about Your company’s plans in the short term perspective.
This year is a serious challenge for the Russian producers and traders. If earlier the quality issues were discussed and regulated by the price, now it is obvious that in terms of low demand You can sell only high quality product. In particular, the quality will depend on several factors, such as modern and proper cultivation and quality seeds. We believe in the prospects of pulses that is why we built the largest processing plant of chickpeas in Volga region. For the last 4 years, we have gained advanced experience — in Russia there is premium chickpeas that are equal to the goods of our competitors, which were noted by our buyers in Jordan, Pakistan, and India. I believe, that after short break Russia will continue to strengthen its position on the global markets as we have background for it — diligence, reliable partners and stable quality.
Interviewed by Polina Kalayda, APK-Inform Agency