Spiraling Prices of Pulses: The Stark Reality


Parul Kochher
Institute of Agri-Business Management

Inflation has begun to cast its shadow on every single commodity of the average middle class Household consumption. The suffering of the Indian consumer has multiplied and a change in the consumption pattern of specific commodities is being witnessed in the Indian diet where many are not able to afford the otherwise staple items in their diet notably rice, sugar and pulses, the price rise in these has been much steeper than other commodities. We discuss in this article the unusual price rise of pulses, the apparent and the hidden causes, Government policies and end with some recommendations.

Pulses, a common source of protein even in the poor Indian's diet has seen rise from hundred percent and even more in certain varieties. Arhar dal which used to cost around Rs 45/kg sometime back is now costing Rs 90/kg a neat hundred percent rise. Among the Individual pulses the WPI of arhar and masur increased by 7.1% and 15.6% respectively. Consumption of this source of protein is highly skewed as the poor are not able to afford the steep rise in prices. The production of Pulses is hovering around 15 million tones whereas the demand has been increasing over the years and is currently slated as 19 million tones. Obviously the excess gap is met through Imports.

Is it just a miss between the equality of demand and supply where the supply has not been able to meet the demand, leading to a rise in prices or the reality lies deeper within the system? Who are the ultimate gainers of this price rise? We seek to answer these questions here. The Economics of Inflation tells us that
Inflation is defined as a persistent and continuous rise in price. A little Inflation is good for the Economy which gives the producers an incentive to produce but what happens in the scenario of Hyper Inflation in which we find ourselves engulfed in. We examine few reasons which have led to the Prices of Pulses rocketing in these times

Farmers turning away-Pulses have been given a step treatment since the late 1960's i.e. the advent of green revolution which saw multiple increases in the production of several crops with pulses production growing the least. It has also been observed that a higher support price for pulses in relation to other crops has had minimal reaction from the farmer community leading to negligible increase in the production. Price fluctuation is also high in case of pulses, leading to higher risks, turning farmers away from production of pulses. The cure may be in the form of non price factors such as better variety of seeds, Infrastructure. Poor acreage is one factor here which calls for attention.

Lack of Marketing Intervention measures- It is to be mentioned here that pulses do not form a part of the Government's Public Distribution System and Buffer Stock Schemes. These are schemes in which Government procures the crops at support prices in peak seasons to release at subsidized rates in times of shortage. This helps in maintaining price stability. This way both consumers and producers are shielded from the fluctuation of prices.

Historical reasons- There are other deep rooted reasons which have to be mulled to arrive at a final cure of this crisis. These are Poor Infrastructure, pest infestations; lack of market information amongst the farmers, antiquated production techniques being used on rain fed marginal farms.

Too many Intermediaries- The supply of pulses suffers from a long supply chain further distorting the farm price and retail prices. Imported pulses prices suffer at the hands of the domestic agencies that are poor in the judgment of how much to import and at what price to sell. Inventory management is the worst.

Competition with Bt cotton- Acreage for grains like pulses is competing with more commercial and viable options which do not need too much water and Bt seeds keep the Pest attack down.

Export of Processed Pulses- To maintain a price stability in the domestic market the Exports have been banned but this is also controversial since India in the last decade has become a major player in the market of processed pulses; thus the banning of exports has been a double edged sword; one it has led to the losses and near closures of mills in the country and exploitation by countries such as Myanmar have increased owing to India's absence from the scenario.

Problem of Imports- A large demand from India wreaks the International Prices Shooting. The final brunt of which is borne by the consumer so much such that there is bad weather in Myanmar (large exporter of pulses to India) and Prices skyrocket in India. Such is menace of a high dependence on Imports. Especially in the Import season if there is a hint of Import falling short, Prices start to plummet.

The Import of pulses was made duty free while battling prices last year and the exports have since been since banned.  The demand for pulses in the current year was around 19 million tones whereas the supply has been hovering around 15 million tones. This is where the Imports come in to meet the excess demand. Annual Imports are estimated to be estimated around 2.8 million tones.

Working of Government Agencies- In many of the Import tenders that have been floated by the Government Agencies it is seen that there is too much Intermediation and profit margins involved before the Government agencies procure these pulses. As a result they end up paying a far higher price in the International market leading to overall losses. They have a 15% subsidy on Import bills given to them which make the private importers suffer. The domestic and International tendering and bidding process creates a monopolistic market environment leading to rise of prices. Thus the procurement process has to be made more cost effective.

Double Cropping suggested- To increase the productivity of pulses some measures of double cropping are needed such as diverting some areas to short term pulses after rabi harvest,  Introduction of rabi pulses where there is an excessive moisture to name a few.

Notwithstanding the fact that there are agro-climatic barriers to Increase in production of any crop but simultaneous consideration is also to be taken for Increase in Farmer's Income( based on Price and Yield) in the current context.

Stringent Measures Required-

1. Commodities which are known to be price sensitive should not be allowed to trade on commodity exchanges which are very speculative in nature.

2. The working of the agencies at the state level has so far been neglected. Policy actions need to be implemented in the same.

3. Public distribution System at subsidized Prices for pulses should be started.

4. Selective credit Control measures need to be taken in case of pulses.

5. Banning of exports is not a solution considering that exports are roughly 1%of the total supply.

6.  The market of Processed pulses in which India has been able to create a niche for itself should not be banned from being exported.

The demand in the coming years will only multiply due to growing demographic pressure and Increasing Economic growth. India has a large Vegetarian population which relies on pulses as a major source of protein. Thus the supply to catch up with the growing demand as of now seems a distant dream. A twin Strategy should be adopted; few which relate to Increasing the acreage have all been cited above. There is no major thrust still being given on any major research in Agriculture. Secondly long term Strategic alliances should be formed with Countries like Myanmar and Canada, Turkey, Tanzania from which India Imports nearly half of its Imported pulses. These countries are endowed with plenty of land and water supply to meet increasing Demands. India has been subject to rainfall deficiency and thus the impact on crops such as pulses which require moisture and adequate quantity of water supply throughout.

Pulses complement the cereals in both production and consumption, In production they require relatively lesser water, increase soil fertility, keep pests in control when in rotation with other cereals. In consumption they are (were) a relatively a cheaper source of protein. It is time to bring the prices in check,  Possibly a commodity of which India is the largest producer, consumer and Importer deserves this much attention at the least.

Parul Kochher
Institute of Agri-Business Management

Source: E-mail February 9, 2010


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