Commodity Analysis

What’s in store for pulses?

G Chandrashekhar | Updated on March 04, 2018 Published on March 04, 2018

A pick-up in food demand will help work off stocks and restore a sense of balance

Pulses have received considerable policy attention over the last three years. Ironically, the nature of intervention has swung from one extreme to another, suggesting that policy makers have had no clue about the shape of things to come.

Policy failure

Two successive declines in domestic output in 2014-15 and 2015-16 due to aberrant weather resulted in an unconscionable escalation in market prices and consumer unrest. This was sought to be quelled by precipitating action against traders, including imposition of stocks limits, raids, seizures etc.

In 2016-17, thanks to high open market prices of the previous year and satisfactory monsoon, pulses acreage reached a new high (16.1 million hectares) resulting in a record harvest of23.1 million tonnes .

At the same time, 6.6 million tonnes of imports added to the supply pressure. In the domestic market, prices collapsed on the back of bulging inventoriesshattering the price expectations of growers.

Pulses prices have remained subdued over the last 12 months ruling well below the minimum support price (MSP).

New Delhi’s efforts to step in to procure from the market to support priceshad little impact. Imports (April to December 2017) aggregating 5.0 mt added to the glut situation. Clearly, it was a commercial intelligence failure on the part of policymakers.

It was as late as August 2017 that quantitative restrictions (QRs) on import of tur/arhar or pigeon pea (two lakh tonnes) and urad and moong or green gram (three lakh tons) were imposed. In November, 50 per cent customs duty on yellow pea followed. Later, duty of 40 per cent on chickpea and 30 per cent on lentil was imposed.

These actions, however, have not had the desired impact. Domestic prices still continue to rule well below MSP . On the contrary, India has alienated traditional supplying countries such as Canada, Australia, Myanmar and East Africa by imposing restrictions suddenly.

Pricing pressure

The Agriculture Ministry has come out with the latest production number for 2017-18, which is pegged at a new high of 23.9 mt, comprising mainly 11.1 mt of chana or gram (9.4 mt); 4.0 mt of tur/arhar (4.9 mt); 3.2 mt of urad (2.8 mt); and 1.7 mt of moong (2.2 mt).

Be that as it may, what’s the outlook for the pulses market in the months ahead? Given the heavy harvest pressure as also large unsold stocks with government agencies and private sector, pulses prices are unlikely to markedly recover over the next four months. They will stay below MSP, forcing the government to double up the procurement effort.

QRs on select pulses coming up for renewal on April 1 are likely to be extended. The forecast for southwest monsoon as well as its onset and progress will have to be closely monitored.

La Nina conditions are fading; and therefore, this year’s temporal and spatial distribution of rainfall will be crucial for the fortunes of the farm sector.

If New Delhi is serious about achieving self-sufficiency, it cannot afford to keep pulse growers disgruntled.

There is risk that they may move away from pulses in the upcoming kharif season. Farmers want secure marketing outlet. If it can be done for wheat and rice, why not pulses.

From the demand side, a series of festivals from August to October would boost consumption of pulses. Demand for besanmade out of chana expands manifold during the festival season.

With the after-effects of demonetisation having nearly waned, one can expect a pick-up in food demand in the second half of the year. That will help work off the burdensome stocks and restore a sense of balance in the market. Specifically, on chana, the latest government figure of 11.1 mt production is a clear over-estimation to the extent of 20 per cent. The crop size could at best be 9.0 t and no more. In the event, chana prices will begin to rise from the current levels of ₹3,600-3,800 a quintal once harvest pressure eases. The rates can potentially touch the MSP of ₹4,400 a quintal in the third quarter of this calendar year and beyond.

The writer is a global agribusiness and commodities market specialist. The views are personal

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