The Indian government’s move to raise import tariffs on chickpeas has nothing to do with their annoyance at Canadian Prime Minister Justin Trudeau, and the tariffs won’t even hurt Canadian farmers as much has some have suggested.
That’s the view of economists and agriculture industry insiders who say the tariffs have more do with Indian domestic politics and economic policy than diplomatic quarrels with Canada; what’s more, the new tariffs apply to a miniscule proportion of Canadian pulse exports.
But while Trudeau’s troubled trip may not have been responsible for the tariffs, experts say it also hasn’t done much to protect Canadian farmers against any future levies.
Trudeau’s week-long visit to India was widely deemed a diplomatic debacle, with the biggest misstep being the invitation of convicted attempted murderer Jaspal Atwal to two official Canadian events in India.
On Friday, more than one Opposition MP stated that India’s decision to raise chickpea tariffs from 44 to 60 per cent overnight was a direct result of the Atwal controversy.
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Conservative House Leader Candice Bergen suggested the tariff hike was a result of India being peeved at national security adviser Daniel Jean’s theory that rogue factions in the Indian government were responsible for Atwal’s appearance.
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“His conspiracy theory against India is causing a breakdown in our relationship,” Bergen said. “The Indian government said yesterday that the chickpea tariff increase was due to circumstances that make it necessary to take immediate action. Well, we all know what circumstances they are referring to.”
She called the tariff “a clear signal that India is understandably upset, and Canadian chickpea producers are the first to pay the price.”
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Foothills, Alta. MP John Barlow, whose birth province of Saskatchewan grows 99 per cent of Canada’s chickpeas according to Saskatchewan Pulse Growers, echoed those concerns.
“The casualties of this latest diplomatic nightmare are Canadian farmers,” said Barlow, a shadow agriculture minister for the Conservatives. “Yesterday, India increased the tariffs on our chickpeas from 40 to 60 per cent, further jeopardizing Canada’s $4 billion pulse industry.”
Not all chickpeas are created equal
But neither Bergen nor Barlow noted that India’s 60 per cent tariff doesn’t apply to the type of chickpea that Canada most commonly exports.
There are two kinds of chickpeas, desi and kabuli, and India’s tariff applies only to the desi variety. Ninety-five per cent of chickpeas exported by Canada are kabuli chickpeas, and Canada’s biggest market for those is the U.S., not India, according to Gordon Bacon, CEO of Pulse Canada.
Kabuli chickpeas are the kind that are used in hummus — “That’s why the U.S. is our biggest market, because of the explosion in the consumption of hummus in North America,” Bacon said.
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What’s more, the dollar value of Canadian chickpea exports to India between 2013 and 2016 represented a miniscule 0.5 per cent of total pulse exports to India, Bacon said (chickpeas are one of four categories of pulses, the others being beans, lentils and dry peas).
Canada exports around $1 billion worth of pulses to India each year, Bacon said, adding that “if you look at the desi chickpea, it was maybe $1 million out of over $1 billion.”
Bacon suggested that the impact of India’s new tariffs on desi chickpeas pales in comparison to tariffs it implemented last year.
In November, India raised tariffs on dry peas from zero to 50 per cent, before adding a 30 per cent tariff on chickpeas and lentils. The chickpea tariff was raised to 40 per cent in early February, prior to Trudeau’s India trip, before being hiked further to 60 per cent on Thursday.
READ MORE: Western Canadian pea farmers worried about new duty imposed by India
Moreover, India’s tariff policy doesn’t just apply to Canada, but to every country that they import from, Bacon pointed out.
“These are multilateral concerns, they have the same concern in Australia, Russia, Ukraine, Mozambique, Kenya,” he said, adding that the country that stands to be most affected by the desi chickpea tariffs is Australia, not Canada.
Fumigation fuss
Where Canada does have a legitimate bilateral concern with India, Bacon says, is India’s requirement that Canadian pulse exporters fumigate their product for pests.
India used to grant Canadian exporters an exemption from fumigation, under the rationale that Canada’s cold climate doesn’t allow pests of concern to survive. But that exemption agreement expired in September, and hasn’t been renewed.
“So the focus from a Canadian perspective is really about addressing what remaining issues India may have with fumigation, so that Canada is removed from that list,” Bacon said.
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Trudeau and Indian Prime Minister Narendra Modi discussed the fumigation issue last week, and while Canada didn’t manage to wrangle an exemption, Trudeau tried to sound a confident note upon his return to Canada.
Speaking in Barrie, Ont. on Friday, Trudeau said that he had “excellent conversations with Prime Minister Modi about science-based approaches to fumigation issues,” and that the pair had agreed to come to a technical agreement on the matter by the end of 2018.
Short notice
Another burning issue is the fact that India doesn’t provide advance notice to Canada before raising import tariffs.
That means cargo ships can set sail from Canada without any tariffs being in place, and reach Indian shores only for exporters to find that a tariff was introduced while their cargo was in transit, Bacon says.
This sometimes causes importers to default on their contracts and decline to accept shipments.
“You create tremendous commercial risk when there’s no predictability in Indian policy,” Bacon said. “One of the immediate things we want to see is exemption for cargos that are already en route to India, from these levy increases.”
In January, the Australian government announced that India agreed to provide its pulse farmers and exporters advance notice of tariff increases going forward.
Canada is yet to secure any such agreement.
Farming for votes
Trudeau’s trip may have been marred by accusations that he has gone too far to pander to Sikh Canadian voters, but India is no stranger to vote-bank politics itself.
With over half of its economy driven by agriculture, and nearly 60 per cent of its citizens living in rural areas, farmers are an important voting bloc in the world’s biggest democracy.
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“Farmers are an important lobby in every country,” says Vivek Dehejia, economics professor at Carleton University and senior fellow in political economy at the IDFC Institute, a Mumbai-based think-tank.
“In Canada, even though there’s so few of them, they’re still a powerful lobby. In India, the number of people who are farmers or live in rural areas is so large that, politically, they’re a really important constituency.”
India has also witnessed a decades-long epidemic of farmer suicides, with tens of thousands of farmers taking their lives due to heavy debts and crop failures.
Dehejia says India’s import tariffs are a way to protect its farmers from situations where there’s a surplus of crops on the market, rendering them unable to sell out their stock. In order to reduce the supply of crops, tariffs are imposed on imports.
“To cut back on imports from abroad and create a bigger market for this domestic surplus, that really was the rationale for these tariffs,” Dehejia said. “This really has nothing to do with what’s happening in other countries.”
Late last year, an official with India’s Ministry of Commerce told Reuters that New Delhi was committed to doubling farmers’ incomes and slashing imports.
Bacon says it’s not uncommon for countries to apply similar policies to protect their domestic markets.
“It’s similar to supply management in Canada, where we have permits or protections so you can’t just bring chicken, milk or eggs into the country,” he said. “The U.S. does it with sugar. There are many examples around the world where countries provide price support or market protection to the advantage of their citizens, and to the exclusion of others. India’s just started to do this with pulses.
“It’s possible that there are still crops coming into the market and they wanted to shut those off, but it’s also possible that India is sending a signal to its farmers and its own electorate that they’re serious about supporting the pulse growers in India. “
Indeed Trudeau’s Liberals aren’t the only ones electioneering with a view to 2019, with Modi’s Bharatiya Janata Party (BJP) also looking to consolidate power in India’s general elections next year.
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But Bacon says that as India raises tariffs, prices for its domestic consumers could eventually start to increase. Once prices rise to the point that consumers start to complain, levies should start to fall.
It’s a fine balancing act between keeping prices high enough to satisfy farmers, and low enough to placate consumers.
“It was only two years ago that the Indian government was making accusations against the pulse trade of price-fixing and hoarding, because their consumers were complaining about high prices,” Bacon pointed out.
Trudeau not to blame, but he hasn’t helped either
Bacon says that regardless of whether India is annoyed with Canada or not, it’s important to note that its import tariffs are not Canada-specific, and affect a great deal of exporting countries around the world.
“I’m not a political analyst. I couldn’t comment on suggestions that somehow, something that Prime Minister Trudeau did had the Indians take action against the whole world,” he said.
Dehejia agreed, adding that the optics of the tariff increase, coming as they did right after Trudeau’s return to Canada, has caused people to draw causal links that are spurious at best.
“I don’t think that if India is annoyed with Canada, or upset with Canada over the [Atwal] allegation, that this would be the way they would respond in the first instance.”
Dehejia says one of the indirect and longstanding reasons for the pulse tariffs is the two countries’ continued failure to negotiate the Canada-India Economic Partnership Agreement (CEPA) trade deal.
The bilateral free trade agreement has undergone at least 10 rounds of negotiations stretching back to 2011, when former prime ministers Stephen Harper and Manmohan Singh were in power.
And there still doesn’t appear to be any light at the end of the tunnel.
“If there was a CEPA, it most certainly would cover farm products in general, agricultural products… it would almost certainly restrain one country from unilaterally slapping high tariffs on the other,” Dehejia said.
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He added that while the moribund state of CEPA negotiations can’t be blamed on Trudeau alone, his diplomatic bungles may have helped guarantee the deal’s demise.
“Even if the trip had been neutral, and the visit had gone ahead with no mishaps, I would’ve said there’s at least some glimmer of hope. But now, I’m really pessimistic that the deals will ever be concluded.”
And that’s a cause for concern for Bacon and the pulse farmers and traders he represents.
Because while the most recent chickpea tariffs don’t have much of an impact on Canada, India could still theoretically — at some point in the future — impose more damaging tariffs on other kinds of pulses that Canada does export heavily, such as lentils.
“India is bound by World Trade Organization maximum tariffs, and currently lentils sit at 33 per cent. India is bound at 100 per cent,” Bacon observed.
“If you ask me if I’m concerned that the lentil trade could be further impacted by hikes in India, the answer is yes. Because tariffs could go up to 100 per cent.”
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