2004-05-28 | Volume 17 Number 8 | ISSN 1494-1805 | AAFC No. 2081/E

Lentils: Situation and Outlook

Canada is the largest exporter and second largest producer of lentils in the world. The value of Canadian exports has averaged $230 million (M) during the past five years. For 2004-2005, Canadian production and exports are forecast to increase from 2003-2004. This issue of the Bi-weekly Bulletin examines the situation and outlook for lentils.

World

Production

Lentils are best adapted to production in the cooler temperate zones of the world or in the winter season in countries, such as India and Australia, which have a warm winter and a hot summer. The seed coat colour of lentils can be clear, green, tan, grey, brown or black. The cotyledon is yellow, red or green. The two main market types are red and green.

World lentil production during the past 10 years has ranged from 2.77 million tonnes (Mt) in 1996-1997 to 3.38 Mt in 2000-2001. Although specific data is not available, an estimated 75% of world lentil production is the red type, 20% green type and 5% brown and other types. Canada and the US produce mainly the green type whereas the rest of the world produces mainly the red type.

Trade

During the past 10 years, world trade has been trending upwards from 0.65 Mt in 1995 to 1.14 Mt in 2001. In 2002, the latest year for which data is available, the top four exporting countries (Canada, Australia, Turkey and the US) accounted for 81% of world exports. About 60% of the exports were the red type, 35% green and 5% brown and other. Canada's share of world exports peaked at 48% in 2000, but was reduced in the following two years due to lower production. Imports were distributed much more widely than exports, with the top 10 importing countries accounting for only 56% of imports.

Canada

Production

Canadian lentil production has increased in response to market signals and contributed to the diversification of crop production in the Prairie provinces, especially in Saskatchewan. The increase in lentil production has proven to be valuable in crop rotations which help to control weeds, diseases and insects and improve soil texture and fertility. The increased production also contributed to the expansion of the pulse crops handling, marketing and processing industry, which increased employment opportunities in rural areas. During the past 10 years, lentil production has been concentrated in Saskatchewan, which accounted for more than 95% of Canadian production. The balance was produced in Alberta and Manitoba.

Lentils are a cool season crop with a restricted root system which is only moderately resistant to high temperatures and drought. They do not tolerate water logging, flooding or soils with high salinity. In the Prairie provinces of Canada, lentils are best suited to the Brown and Dark Brown soil zones, but can be grown successfully in the Black soil zone in years without excessive moisture. Lentils work well in a rotation with cereals, such as spring or durum wheat. Nitrogen fertilizer is not recommended because lentils possess the ability to fix nitrogen in nodules on the roots, where it can be used for plant growth. The nitrogen fixed by lentils is also used by other crops in the following years. To maximize the nitrogen fixation ability, lentil seed should be inoculated. Lentils require 90-100 days to mature and should be seeded as soon as the soil temperature is greater than 5° Celsius.

Canadian production reached a record of 914,000 tonnes (t) in 2000-2001, but fell sharply in the following three years due to one or more of the following factors: lower seeded area, drought and excessive rainfall during the harvest. Canada is the main producer of the green type of lentils in the world, accounting for about 70% of world production. However, production of the red type has been increasing and Canada has become a significant producer. Canadian production of dark green speckled and brown types is small, accounting for only about 2% of total Canadian lentil production. The Canadian lentil harvest generally occurs during the period from mid-August to early October.

Most of the lentils produced in Canada have a green seed coat and yellow cotyledon. They are normally referred to as large green, medium green and small green, based on the seed size. The large green type includes the Laird, Glamis, Sovereign, Grandora, Plato and Sedley varieties. Their seed size is 60-70 grams/1000 seeds. The medium green type includes the Richlea and Vantage varieties, with seed size of 50-55 grams/1000 seeds. The small green type includes the Eston, Viceroy and Milestone varieties, with seed size of about 35 grams/1000 seeds. Canadian red type of lentils have a brown or pale green seed coat with red cotyledons. The red type varieties include Crimson, Redwing, Redcap, Redberry, Robin and Blaze, with seed size of 30-40 grams/1000 seeds.

Marketing

All of the lentils produced in Canada are sold on the open market to dealers. With the increase in production, the number of dealers across the Prairie provinces who buy, clean and ship lentils to domestic and export customers has increased to about 50. The dealers range from large corporations to small family-owned businesses. In recent years, producers have invested in several new plants which handle pulse crops, including lentils. There are several processing plants in Saskatchewan capable of de-hulling and splitting red and green types of lentils for the world market.

Lentils are shipped to ports mainly bagged in containers, although bulk shipments have been increasing with the building of suitable handling facilities. From the ports to overseas customers, they are shipped mainly bagged in containers, although some are also shipped bulk in containers or bulk inside the hold of ships. Most of the Canadian lentils are exported through the ports of Vancouver and Montreal. In addition to whole lentils, Canada also exports split lentils. The export of split lentils has been increasing, as Canadian splitting capacity expanded through the construction of new plants.

Domestic Use

Canadian domestic use, which includes food, feed, seed, dockage, and waste, accounts for about 25% of production.

Exports

Canada exports about 75% of its production, while most other major producers export a relatively small portion of their production. Canadian lentil exports are dispersed throughout the world. The main importing countries in each region are: Europe (Italy, Germany, Spain, Belgium, France, Greece), Middle East (Turkey, Egypt), Africa (Algeria, Morocco) South America (Colombia, Venezuela, Ecuador, Chile, Brazil, Peru), North America (Mexico, US) and Asia (India, Pakistan).

Although the large green type of lentils is exported all over the world, the main destinations are north-western and southern Europe, northern Africa, South America, and Central America. The medium green type is exported mainly to the US, north-western Europe, Spain and northern Africa. The small green type is exported mainly to Morocco, Greece, Italy, Egypt, and Mexico. The red type is exported mainly to southern Asia, the Middle East and northern Africa. The dark green speckled type is exported mainly to France and the brown type mainly to Spain.

Prices

Canadian prices are largely determined in the international markets because Canada exports about 75% of its production. Since Canada produces most of the green type of lentils in the world, while it is a relatively small producer of the red type, the level of production in Canada has much more influence on green type prices than on red type prices. The substitution of one type of lentil with another is very limited. Therefore, it is common for wide price spreads to exist between different types of lentils. Since there is no futures market for lentils, prices are negotiated directly between dealers and customers, based on supply and demand factors for each type of lentil, for immediate delivery or for delivery at some future date.

Some lentils are grown under production contracts, which guarantee a price for part of the production, but most are sold on the spot market.

Organizations

The Canadian Special Crops Association (CSCA) www.specialcrops.mb.ca establishes trade rules for domestic trade and serves as a forum for exporters, dealers and brokers involved in the industry of trading Canada's pulse and special crops, including lentils. The website includes a section where buyers can submit a request for prices.

Pulse Canada (www.pulsecanada.com) is an industry organization, with the CSCA and provincial pulse growers' organizations as members. It is involved in policy issues, coordinating research efforts, market development and market access. The website contains information on pulse crops, markets, and health and nutrition.

The Canadian Grain Commission (CGC) administers quality control standards for lentils. The grades are No.1, 2, 3 and extra 3 Canada other than Red, and No.1, 2, 3 and extra 3 Canada Red. Lentils which do not meet the listed grade standards are graded Sample Canada. The major quality concerns in lentil grading are damage due to heating and peeling, split or broken seed, seed discolouration, as well as foreign material. For further information, or to access the Official Grain Grading Guide, please visit the CGC website: (www.grainscanada.gc.ca).

Utilization

On average, about 75% of the red type of lentils, 45% of the green type of lentils and 70% of all lentils are consumed in the countries where they are produced. Total world use has been trending upwards during the past 10 years.

Lentils are used almost exclusively for food. Generally they are canned or packaged, whole or split, for retail sale, or processed into flour. They are then used in soups, stews, salads, casseroles, snack food and vegetarian dishes. In southern Asia, split red lentils are used in curries. Lentil flour is added to cereal flour to make breads, cakes and baby foods. Lentils are often used as a meat extender or substitute because of the high protein content and quality. Lentils have a shorter cooking time than other pulses and do not need to be pre-soaked.

Only a small volume of low quality lentils are used for livestock feed, however nutritional analysis indicates that they make an excellent feed.

Healthy Diet

Pulses, including lentils, are increasingly being used in health-conscious diets to promote general well-being and reduce the risk of illness. They are low in fat, high in protein, and are an excellent source of both soluble and insoluble fibre, complex carbohydrates, vitamins (especially B vitamins) and minerals (especially potassium, phosphorus, calcium, magnesium, copper, iron and zinc). Lentils are an inexpensive, high quality source of protein.

Since lentils are high in fibre, low in fat and are cholesterol free, they are an excellent heart healthy food that may be beneficial to the prevention of coronary and cardiovascular disease.

Eating lentils may help lower blood cholesterol levels due to their high content of soluble fibre and vegetable protein.

Lentil consumption can be beneficial in the management of type-2 diabetes because lentils have a low glycemic index of 55 or less, indicating that their effect on blood glucose is less than that of many other carbohydrate containing foods. Lentils also have other health effects, such as reducing blood lipids, that may help some serious complications of diabetes.

Flour made from lentils is gluten free and is a very nutritious option for people with celiac disease.

Lentils fit well in vegetarian diets as they are a good source of iron and protein, and complement the amino acid profile of cereal grains and nuts.

Insoluble dietary fibre consumption can be beneficial to a healthy colon and has been associated with reducing the risk of colon cancer. In addition, diets high in fibre have demonstrated beneficial effects on weight loss because they deliver more bulk and less energy.

Lentils are an excellent source of the B vitamin folate which is an essential nutrient. In addition, folate consumption during pregnancy has been shown to reduce the risk of neural tube defects.

Lentils contain non-nutritional components called phytochemicals which have demonstrated favourable effects in the prevention and treatment of numerous chronic conditions including cancer, diabetes, cardiovascular disease and hypertension.

Outlook: 2004-2005

World

World production and supply are forecast to increase by 11% and 9%, respectively, from 2003-2004, to 3.30 and 3.35 Mt. Canada's share of world production is expected to increase to 21% from 17% in 2003-2004. Total world use and carry-out stocks are forecast to increase.

Canada

Canadian seeded area is forecast to increase by 26%. Since 98% of the lentils are expected to be seeded in Saskatchewan and since most of Saskatchewan has below normal soil moisture reserves, it will be difficult to achieve trend yields even if there is normal precipitation during the growing period. Therefore, assuming normal precipitation for the growing period, average yields are forecast to be lower than trend, but slightly higher than in 2003-2004. Based on these assumptions, production is expected to increase by 31% from 2003-2004 to 680,000 t. The main factor to watch is precipitation during the growing period, as it will have a large impact on production. Production is expected to increase for all types.

Supply is forecast to increase by only 21% to 700,000 t, due to lower carry-in stocks. Exports are expected to increase as Canada's share of world supply increases. Carry-out stocks are forecast to increase to 70,000 t, with the stocks-to-use ratio increasing to 11%. Average producer prices are forecast to decrease for all types due to the higher supply. However, prices could be very volatile, especially for the green types, if there are any production problems.

US Farm Security and Rural Investment Act of 2002 (FSRIA)

For the first time, lentils, dry peas and small chick peas are included under the loan program. The loan rate provides a floor price to the producer for lentils because if the price is lower than the loan rate, the producer is eligible for a loan deficiency payment. This made it easier for producers to obtain operating loans. The loan rate for lentils was US$11.94/cwt (100 pounds) for crop years 2002 and 2003, and will be US$11.72/cwt for 2004 to 2007. The base quality levels for the 2002 crop year was No.1 grade, but was lowered starting with the 2003 crop year to No.3 grade, which makes it easier for lentils to qualify for loan deficiency payments (LDP).

Loans made under the program for 2002-2003 were US$0.36M and US$2.06M for the first 11 months of 2003-2004. LDPs were US$2.38M for 2002-2003, but there were no LDPs for the first 11 months of 2003-2004 as the posted county prices were above the loan rate. For 2002-2003, the average LDP was US$1.25/cwt and was paid for about 75% of US lentil production.

US lentil production in 2003-2004 occurred in the states of Washington (37%), Idaho (26%), Montana (11%) and North Dakota (26%). The medium green and brown types accounted for most of the production, but the US also produced large green, small green and red types. The largest buyer of US produced lentils is the United States Department of Agriculture (USDA), which uses them for food aid programs.

US seeded area increased by 6% from 2001 to 2002, when the loan program was introduced for lentils. The seeded area increased by 10% from 2002 to 2003 and is forecast to increase by 12% from 2003 to 2004. The US Congressional Budget Office forecast a doubling of seeded area from 2001 to 2007. Although the rate of increase in seeded area for 2002 and 2003 was lower than the Budget Office forecast, including lentils under the loan program has supported increased seeding.

Lentils are not eligible for direct payments and counter-cyclical support. However, these are based on historical seeded area and yields and are theoretically decoupled from seeded area during the year of the payout.

Increased lentil production in the US is expected to pressure world prices. For example, if US production doubled, that is a 4% increase in world production and a 13% increase in lentils available for exports. Higher production in the US means that more of the US lentils will have to be sold commercially rather than to the USDA. Although higher US production is expected to pressure world prices, producers in the US will be protected from lower prices by the loan rate. Most of the increase in US production is expected to be in Montana and North Dakota, as there is more competition for land from other crops in Washington and Idaho. Production of lentils is not expected to spread to other states as they are either too hot or too wet for lentil production.

[D]

[D]

[D]

by Stan Skrypetz, Pulse and Special Crops Analyst

While the Market Analysis Division assumes responsibility for all information contained in this bulletin, we wish to gratefully acknowledge input from the following: Canadian Special Crops Association, Pulse Canada, Saskatchewan Agriculture, Food and Rural Revitalization, University of Saskatchewan, Market and Industry Services Branch (AAFC)