Pulses, not sugar, are hurting the common man

Ask any common man and he'll say he is angry about pulses prices showing no signs of remission but not about sugar prices touching Rs 40 a kg. Some varieties of pulses now cost close to Rs 200 a kg, leaving a big hole in the common man's household budget. One wonders if New Delhi's showing concern about sugar becoming expensive is an attempt to deflect attention from the runaway rises in prices of pulses, which families must have with two principal meals. Both sugar and pulses are highly globally-traded commodities and their world prices will at all times have a bearing on local markets. At the same time, India being the world's largest user of both, the size of domestic production will impact prices in a major way.

Let's consider pulses first. According to the second official advance estimate of production of major crops during 2015-16 released in mid-February, pulses output is put at 17 million tonnes (mt). For the second year in a row, pulses production, a victim of extreme dry weather will be less than the normal of 19-20 mt. The responsibility for pulses prices rising rapidly will be laid at the government door. Had New Delhi been armed with a sufficiently large buffer stock of pulses, it could have successfully intervened in the market to tame prices.

According to Ashok Gulati, former chairman of Agricultural Costs & Prices, successful market intervention demands government agencies to hold "stocks equalling to 10 per cent of demand." Against this, the government has decided to build a pulses buffer of 150,000 tonnes only. No wonder, then, that imports of 5.5 mt in 2015-16 and action against hoardings failed to make the desired impact. The government, irrespective of the coalition heading it, is given to knee-jerk reaction when a crisis of the kind now found in pulses happens. Instead, it should take seriously the observation in the 2016-17 Economic Survey that the "central challenge of Indian agriculture is low productivity, evident in modest average yields, especially in pulses", an important source of protein for the masses. In the key pulses producing state Madhya Pradesh, the yield of 938 kg a hectare is barely three-fifths of 1,550 kg a hectare in China. So, along with building a sufficiently large buffer and facilitating high levels of imports, the government should have a robust productivity improvement programme.

In the meantime, contradictory statements by central Cabinet ministers on sugar costs and prices are made at a time when the industry after three excruciating seasons has started earning some surplus.

This is essential as sugar factories are yet to settle dues for the cane received from growers amounting to Rs 15,000 crore. How can sugarcane be described as a cash crop if market prices of sugar restrict factory capacity to clear dues? Hasn't a senior minister said earlier this year that the sugar production cost is between Rs 3,300 and Rs 3,400 a quintal? Production cost varies from state to state depending on whether cane is procured on fair and remunerative price or state advised price, and also the rates of recovery of sugar. If ex-factory prices of sugar are now allowing factories to recover cost, then the sweetener selling at Rs 40 a kg at retail point is a given. Branded sugar sold in packets, however, commands a premium of Rs 5-6 a kg over the loose variety. But, that sugar is for a select group.

From where does the principal demand for sugar originate in the country? Bulk buyers such as makers of beverages and sweetmeat account for nearly 80 per cent of the sugar sold here. Expect them to be resentful of sugar price improvements since January. What matters to them is that there is more money in the hands of sugar factories, enabling them to clear the cane bills accumulated over the past many months, says industry official O P Dhanuka.

Reports of sugar supply squeeze here and also in China and Thailand and the forecast of global deficit in the current season climbing to 7.5 mt from the earlier estimate by 2.5 mt have infused bullishness in the world sugar market.

New York ICE futures for raw sugar are, therefore, trading at a high of 17.40 cents a pound. In the meantime, dry weather in some major cane-growing centres will likely restrict India's sugar production in the next season to 23.5 mt. But, since the 2016-17 season will open with stocks of 7.5 mt, at no point should supply be a problem. In the next season, stocks will still be 5.5 mt after fully meeting domestic demand from local production.