Trade Talk with Hunain Khatri/
Trading in Pakistan and the outlook for 2022

Can you start off by telling us a bit about yourself: what’s your background?

I actually started my career in the chemical dyes indenting business. After that I joined Shahzad and Company and started working for them. When they merged with SS Indenters in 2011, I got involved with managing the foreign trading business as a partner and a few years after that I became Managing Director, which is the role I serve in now.

And what about SS Indenters, what do you do?

SS Indenters has been around for 10 years. We have operations in both the pulses and chemicals sectors but pulses is our biggest business. Our pulses business is mostly focused on red lentils, desi chickpeas and yellow peas. We import and indent a variety of pulses and beans from around the world. We also have two crushing facilities in Karachi and have other interests which touch on other aspects of the agriculture industry.

Which markets do you trade with? 

Our desi chickpeas mostly come from Australia; we are finding that it’s really the only place to import them from at the moment. And then we import our lentils predominantly from Canada and Australia, though sometimes we’ll also buy from Russia — right now, they are quite competitive (in terms of price) although the quality isn’t always as good as Canadian and Australian. As for yellow peas, we are importing from Russia and Ukraine and, to a lesser extent, from Canada.

Are there any others?

We do a smaller amount of trading in kabuli chickpeas from Argentina, the U.S. and Australia. Turkey used to be a major exporter but they had a really bad crop in the summer of 2021 which has meant there is much less availability. We haven’t been able to buy anything for them for the whole of Q4-2021.

The situation in Turkey has destabilised the global market for kabuli chickpeas. We’ve seen prices rise by around 150 percent. In Russia, for example, in 2020 we paid around $400-$500 (USD) per tonne. In 2021, we’ve seen that increase to around the $600-$900 range. The story is the same in America. December 2020, I remember we paid $780 per tonne of 9 mm calibre peas. Twelve months later, we are being quoted around $1,400 — that’s a 100 percent price increase.

And what’s your outlook for the kabuli chickpeas market?

I think we will see a shortage for the first half of 2022. Issues like drought, poor harvest and national export bans don’t resolve themselves very quickly, so I think we will need to be patient.

How are you managing these price increases? 

Well, demand in the Pakistani market is very sensitive to price increases. Local buyers can’t absorb a 100 percent price increase, nor can they pass it on to consumers, because they just couldn’t afford it. So we work hard to find the cheapest possible international prices and offer them to local buyers. That’s why we’ve started importing a lot more from Russia, particularly for yellow peas. Unfortunately, desi chickpeas are not very substitutable — our supply is pretty fixed from Australia.

We are also trying to diversify our customer base. We are working more with international companies from countries like Australia, Turkey, Canada, and Malaysia; we trade with 12 countries overall.

And where are you seeing the most resilient demand, despite significant price increases of desi chickpeas?

Bangladesh is buying very aggressively at the moment, especially desi chickpeas.

How come?

Well, like many Muslim-majority countries around the world, Bangladesh is preparing for Ramadan in April. So it’s not unusual to see very large increases in pulses demand in the months leading up to this period, as there are lots of traditional dishes, like curries, which are made using lentils and chickpeas. So we are seeing increased shipments from Australia and Canada going to Bangladesh.

Isn’t Pakistan in the same position?

Yes and no. We will be observing Ramadan in April just like Bangladesh. But unlike Bangladesh, we are not in a position to start stockpiling and we need to buy more. For example, by early December, we only had around 1,500 containers’ worth of stock in our warehouses. That probably won’t last past the end of January. Come February and March, Pakistan will have to start buying aggressively.

Would that push prices up even further?

Yes, almost definitely. Russian farmers and traders will notice the increased demand and prices will rise. And because there is no real substitute, Pakistan will pay.

Interesting. Looking at the Pakistani economy more broadly, we’ve seen increasing inflation and slow economic growth. How are these factors affecting the pulses market?

Yeah, it’s been a very difficult year for traders. The high rate of inflation is due to a large trade deficit and a rapidly depreciating currency: the Pakistani rupee has lost 70 percent of its value (against the US dollar) in the last three years. And in 2021 we’ve seen a lot of volatility.

For importers, an unpredictable currency can be catastrophic, particularly at a time when disruptions to the global supply chain mean that our shipments are taking longer to arrive.

Why’s that?

Well, let’s say we book an order of yellow peas from Canada in September, which is due to arrive in around 60 days (by November). In that three month period, however, we can see exchange rates shift, which means that by the time the order arrives, the economics of the trade can look very different, as the price we projected to pay (in rupees) looks very different.

Since May, traders across Pakistan have been experiencing this phenomenon and it’s impacting people quite a lot.

How are you managing to stay profitable in these circumstances? 

We are fortunate that our main commodities are currently trading in a high price environment. So for example, with kabuli chickpeas, we are trading at a 55 percent price premium; that comfortably covers the depreciation ranges we are seeing for the rupee right now.

However, there is increased short-term risk for desi chickpeas. Even though prices are around 30 percent higher, there are already stockpiles in Pakistan (the 1,500 containers I mentioned earlier). These will last for the first few weeks of 2022.

And in terms of the local market, are there different characteristics of buyers?  

Yes, and this is related to the different way pulses are used in Pakistan.

As you know, a large percentage of our population is rural, living in the villages. They always need to eat but they can’t afford things like meat, so we often see high demand for pulses in these areas. Lentils, for example, are used in curries. Right now, the price is around $950 (USD) per metric ton. That is really high. So we see people substituting this with desi chickpeas, which is still $660 (USD).

That’s a really useful insight. So, as we are into a new year, can you just finish by sharing what’s on your horizon. What opportunities or risks are you watching for most closely?

On the opportunities side, we are seeing good stocks of yellow peas arriving in Dubai from India. We’re seeing prices of around $420 (USD) per metric tonne, or even lower, depending on the quality. There have been really inconsistent shipments to Dubai because of the high costs there, so it’s interesting to see increased volume there.

On the risk side, we are monitoring the weather in Pakistan quite closely for the first few weeks of January. We have a desi chickpeas crop which is due to be harvested in mid-March. We have seeded around 1.6 million acres for that, with an expected yield of 350-400k tonnes. But to get that output from the seeded crop area, we need consistent rains until the third week of January. As things stand (in the first week of January), the current moisture is not sufficient for the crop. Annual consumption of desi chickpeas in Pakistan is around 650-700k. Even if we get the rainfall, there will be a significant shortfall for 2022 and we will have to import the shortfall from Australia.

That’s something we’ll watch closely over the first quarter, thanks Hunain. And thanks so much for your time — wishing you a happy and prosperous new year!