Big Picture. India’s dal shock continues unabated

 It is really surprising to see that prices of a staple food item — pulses (dal) — are high at a time when most soft commodities are ruling at their all-time lows.

Prices of pulses and pulses products rose 46.1 per cent and contributed over 1.5 per cent to the 5.4 per cent retail inflation in November, as measured by the consumer price index (CPI).

 Delayed and unseasonal rains led to an 11 per cent decline in pulses production to 17.2 million tonnes in the 2014-15 (July-June) crop-year, from a high of 19.78 million tonnes a year before.

International prices of pulses are also running at record high levels because of production shortfalls in key producing regions — Myanmar and Africa in particular, with respect to tur.

Sceptics, however, say that the above mentioned factors — the production shortfall caused by monsoon deficit and hardening of global pulses prices — can’t fully explain such a steep rise, especially in tur and that hoarders and speculators may be manipulating the market. That may explain government’s crackdown on hoarders.

Speculation may be a factor, but such short-term factors should not lead one to ignore the long-term structural factors responsible for the supply deficit.

Cereal obsession India’s growing population and increasing preference for healthy food means ever-rising demand for protein foods like pulses, more so for the vegetarian population.

However, pulses production has been growing at sub-1 per cent per annum for over four decades now. As a result, per capita availability of pulses has declined from 61 gram/day in 1951 to roughly 42 gram/day lately.

Yet, government policies are cereal-obsessed. Minimum support pricing and government procurement programmes are over-incentivising cultivation of rice and wheat at the cost of food crops like pulses even if their demand is growing at a faster rate.

Rising production cost, lower yield and extreme price volatility in an over-regulated market mean lower preference for pulses cultivation. This is reflected by the almost stagnant acreage around 25 million hectares. No surprise then that India's pulses production has stagnated around 17-18 million tonnes.

Pulses are moisture-sensitive crops, hence better irrigation is essential for higher yields.

Yet, close to 90 per cent of the area under pulses cultivation depends upon the monsoon. The result: India’s pulses productivity is less than half of that in Canada, one of the top pulses exporters.

 Extreme volatility in prices also adds to farmers’ woes. For instance, Chana (Gram) spot prices doubled to ₹50/Kg in July 2012 compared to 2011, again declined to ₹27 in July 2013, then remained in the range of ₹27-32 till July 2014. They finally jumped to a record high of ₹54 in November.

With the rise in prices of pulses, the government resorts to its usual tactics: crackdown on hoarders, imposition of stock limits, persuading commodity exchanges to ban trades or impose higher margins, and in the end import, when all else fails.

This year too, the government resorted to duty-free imports till December 31, imposed stock limits and seized over 80,000 tonnes of pulses.

A crackdown on hoarders and stockists at best is a temporary measure. Stockists do play an important role in ensuring supply of short duration crops after the arrival season is over.

The majority of the crops are short-duration ones with life-cycle of 1-4 months, but their consumption happens round the year. Therefore, government actions may dis-incentivise private players from investing in infrastructure such as warehouses and cold storage.

Similarly, imposition of higher margins at commodity exchanges may not work for long, as the volume of trading is not much. Besides, this may drive out small traders who are critical to deepening the future markets.

The long-term solution lies in addressing supply impeding factors — lack of irrigation facilities and low yield.

The creation of an effective buffer stock mechanism for pulses may help.

Outlook Against a consumption demand of 22 million tonnes, output is estimated at 18.3 million tonnes in the 2014-15 crop year — mainly because of increase in acreage by 12.5 per cent.

But that acreage may not translate into expected output as unexpected rains have damaged the rabi crop.

As a result, pulses prices are likely to remain firm. At best, they may see slight downward movement in December-January. Meanwhile, households will definitely have to bear with high retail prices.

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

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