By Sudhakar Gummula
In the narrative that has emerged in the past couple of years about pulses in India, domestic production does not match up to the massive demand, requiring India to be a large importer as well. Yet, farmers are once again rising up in anger this year, as pulse prices fall far below their expectations, indicating that there is a mismatch between demand and supply at work.
Indian pulses production hit a record high of 224 lakh tons in the crop year 2016-17, sharply higher than the 164 lakh tons produced in the previous drought-hit year. Even as production soared, this pulled crop prices down from precipitously high levels to even below the government-set minimum support prices (MSP).
How tur and chana dal have fared
Take this past year’s tur crop, for instance. With prices of tur dal reaching as high as Rs 200 per kg at the retail level in 2015-16, farmers were enthused to plant more of the crop. And with favourable monsoon rains helping them, production increased by a steep 80% in the year 2016-17 to 46 lakh tons. With such a glut in the market, prices of the crop fell even below the MSP of Rs 5,050 per quintal. Prices paid to farmers still continue to remain well below that level even in key markets like Karnataka and Maharashtra.
The chana crop, on the other hand, has done somewhat better. Chana, the largest pulse crop produced in the world, hit more than Rs 90 per kg in wholesale markets in India, and some farmers – who preferred to sell late in the season (Nov 2016 to Dec 2016) – received higher prices for the season.
However, the prices of the crop crashed in early January 2017, as confirmations were received that India was about to harvest its largest crop of more than 90 lakh tons. By February 2017, prices had fallen down to the MSP set at Rs. 4000 per quintal, though prices of the crop firmed up thereafter and have stayed a little above that level.
The different fates of the two crops have also been reflected in government procurement activity for buffer stocking. While government agencies procured 11.6 lakh tons of tur – which is more than 25% of estimated production for the season – the procurement of chana crop remained minimal.
Chana farmers have been comparatively luckier than tur farmers, as chana finds its use in the food industry for processing into besan flour. Besan is used for making sweets and namkeens, and the demand for it rises significantly during the Indian festive season that starts in July and August. While farmers may need liquid funds during the season, traders are more than willing to stock the commodity so that they can sell it at higher prices.
Another mitigating factor has been the severe drought in Eastern Australia. In the previous year, the region produced 14 lakh tons of the crop and exported 98 percent of it. But the drought is forcing the farmers there to reduce the area under the crop this year.
Preliminary estimates indicate that production of the crop may decline by more than 30% to a more moderate 9.5 lakh tons, indicating that cheaper imports may not be available from Australia by the end of this year, at least to the extent of short fall in production.
These two reasons have ensured that chana farmers have been a little more than the MSP by private traders, so that the latter’s stocking requirements are fulfilled. This has ensured that government agencies have not mopped up the commodity and taken control of the market.
Despite the better fortunes of chana farmers, however, not all is well with the pulses market.
Import duty on pulses
World over, import duties are used to protect the domestic producers of any country. In case of agricultural commodities, they are used to protect farmers who are primary producers. In India import duties on pulses were abolished during the high price regime to enable cheaper imports and contain inflation. However, they remained at the zero level even after it became clear that the country was returning to a high production phase.
The 10% import duty on tur, which came late in March 2017, should have actually come back in October or November 2016, when Indian farmers started harvesting the crop. This would have prevented any cheaper imports further causing distress sales.
Also, it is not clear whether the duty applies to lentils, which are near substitutes for tur, especially the yellow variety. These are being readied to be dumped into India at reduced prices.
The import duty on chana, which should have come into effect in January 2017, when prices started crashing, is yet to see the light of the day.
Demand for pulses
During the pulses price crises a year ago, it was estimated that Indian consumption demand for pulses is upwards of 250 lakh tons, and there was a huge shortfall in domestic supply with production staying in the range of 160 to 170 lakh tons. So, the reasoning went, prices were demonstrating a sharp spike.
Assuming that we started the 2016-2017 crop season for pulses with a bare minimum of 5 lakh tons of carry-in stock, the production of 224 lakh tons and the normal annual import of 50 lakh tons, should keep the total supply at around 280 lakh tons.
Assuming that consumption increases to 260 lakh tons as low prices bring more consumers, there should be no stock of pulses left with private sector, by the end of the year. Only the government agencies shall be holding little over 20 lakh tons, as buffer stock.
But this scenario is hard to digest, as current market prices do not match, with farmers being paid lower than MSP for tur and only a little over MSP for chana. Besides this, government agencies have been finding it hard to offload the stock even during the peak demand months of April-May for tur.
In other words, the estimates of 250-260 lakh tons of consumption are humongous, and may actually include the stock held by private sector that has not been disclosed. The government needs to make efforts to ascertain the stock held by the private sector at regular intervals, so that it is not counted towards the consumption demand and can thus prevent any sharp spike in prices, citing demand as a reason.
Sudhakar Gummula is an agri-business consultant.
Note: The author is a contributor and the views expressed are personal.