Pulses trade association upset with additional margin on chana

Upset with sudden hike in the margin for only buy positions on desi chana (chickpeas) that has precipitated a sharp decline in local market prices, the domestic pulses trade has petitioned the market regulator to revoke the additional 10 per cent margin that has taken effect from September 30.

Arguing that the steep 20 per cent fall in chana prices as a consequence of increase in margin was ill-timed, India Pulses and Grains Association, the apex body for the country's pulses and grains trade, has cautioned that the move may prove counter-productive because chana planting for the upcoming rabi season is set to commence soon and any price decline will send out wrong signals to the growers.

The association has expressed apprehension that the sudden fall in prices is likely to prompt importers to cancel or settle their import contracts (for chana as well as its close substitute yellow peas) as there will be no price parity. A considerably weaker rupee has already pushed the cost of imported material higher.

According to the estimate of the Agriculture Ministry, chana production during 2010-11 was a record 80 lakh tonnes.

However, the association believes the actual crop size could be considerably lower at about 60 lakh tonnes. This substantiated by the fact that the physical market price of chana was at least Rs 2,500 a tonne higher than futures prices, the association pointed out.

The pulses trade has argued that the imposition of additional 10 per cent margin will lead to severe shortage in the coming months due to lower imports and shortfall in production next year due to lower plantings.

It is of course unclear what considerations lay with the regulator in announcing a hike in margin. This incident once again brings to the fore the need for more in-depth product knowledge and market knowledge that exchange officials and the regulator must possess.

Clearly, there are several stakeholders in the commodity market and several dimensions to any issue including prices. It is necessary to exercise caution in matters that affect market prices of essential food products. A process of stakeholder consultation is advisable.