Finally, some respite from dal shock

Good rain, increased acreage and hike in minimum support prices likely to cool prices

The Modi government has been struggling over the last two years to contain the unprecedented rise in the prices of pulses, the second-most important food item after cereals. In the interim, prices of tur have more than doubled, and near-doubled in the case of urad and chana. WPI prices for pulses increased 35.76 per cent in July 2016 (YoY), thanks to two back-to-back droughts that forced India to import pulses amounting to over 40 per cent of total global trade.

However, a good monsoon, along with increased acreage, in response to historically high prices and significant hike in the minimum support prices (MSP), are likely to provide some relief from dal (pulses) price shock. The cooling impact on price of pulses is already being felt. Prices of chana in Delhi, which reached a peak of ₹9,130 per quintal in July, are currently quoting at ₹8,050 per quintal. Prices of pulses are expected to dive further on arrival of kharif crops in the next few months.

Monsoon effect

Consecutive droughts reduced the production of pulses to 17.33 million tonnes (mt) in 2015-16 and 17.15 mt in 2014-15 from a high of 19.25 mt in 2013-14. This has resulted in a 27 per cent year-on-year rise in import of pulses to 5.79 mt costing India ₹25,691 crore in 2015-16.

India, despite being the world’s largest producer and consumer of pulses, has lower productivity, less than even Bangladesh and many African countries. India’s yield of pulses stands at 0.73 quintal/hectare compared to 2.0 quintal/hectare in Canada and Australia — the largest exporters and India’s top suppliers.

According to an FAO study, with the same amount of water and quality of inputs, the productivity of a crop enhances 2.3 times on irrigated land versus rain-fed land. However, hardly 18 per cent of India’s pulses output comes from irrigated land, while the rest is dependent on monsoon.

This explains the expectation of a sharp jump in output of pulses for 2016-17 due to normal monsoon and increased acreage incentivised by higher prices in the last two years. As on August 26, the acreage of kharif pulses is up by 35 per cent to 13.94 million hectares with higher coverage of tur, urad and moong.

Global supply

Robust demand from India has driven up prices of pulses globally. As a result, farmers in all producing regions have stepped up production that could substantially improve supply. Expectations of record high production from Canada (40 per cent up) and increased harvests from Australia (50 per cent up) and Africa (15 per cent up) in 2016 are likely to put pressure on prices of pulses.

Government intervention

On its part, the Centre has taken several measures, mostly ad hoc in nature, to control pulses inflation. For instance, to boost production, it raised the support prices of pulses significantly with additional bonus of ₹425 per quintal over and above the MSP for 2016-17 kharif pulses. MSP-led price hikes can result in increase in acreage and output on a temporary basis but production starts falling again once prices come down on improved supplies.

Again, crackdown on hoarders are, at best, temporary measures, and have not helped much in cooling prices.

To augment supplies, India has signed a contract with Mozambique for more imports and is in talks with Brazil to use its land to grow pulses. Though this is a good move, it is not enough to make India self-sufficient in pulses. The long-term solution lies in increasing acreage, productivity and improving coverage of pulses cultivation under irrigation.

That calls for major adjustments in India’s agricultural policy from over-promotion of cereals towards promotion of pulses. As a temporary measure, the government will have to arrange for assured market in case of excess supply.

Outlook

Increasing acreages, normal monsoon and, hence, better yields along with expectations of record high import of 6-6.5 mt in 2016-17 as estimated by the Indian Pulses and Grains Association will continue to put a check on prices of pulses.

Chana prices, which are ruling firm due to supply shortage, can correct further in one-two months on new crop arrival from Tanzania and Ethiopia, followed by crops from Australia.

Higher global supply and arrivals due in the next few months will bring relief from the high prices of pulses in future. However, the monsoon will remain a crucial factor to watch for in September and lower stocks will limit the loss.

The author is Vice-President and Head Agriculture, Food and Retail at Biznomics Consulting

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





Related

This article is closed for comments.
Please Email the Editor