The price increase in pulses based on Consumer Price Index (CPI) has dropped from a high of 46 per cent in December 2015 to 0.2 per cent in November this year. The corresponding decline in overall food inflation is from six per cent to two per cent, reflecting the faster decline in the price of pulses. The persistent problem of high pulse prices for the last few years appears to have abated, at least for now. This is good news. However, there is another crisis brewing in the sector. First, a look at the recent performance.
The downward spiral in prices started in July this year. Not only inflation, which is based on year-on-year calculations, but actual prices also have shown a decline in the last three months — the declines of various pulses ranging from three per cent to 14 per cent in major metro cities. This improvement is mainly due to an impressive increase in the kharif pulse production — from 5.5 million tonnes in 2015-16 to 8.7 million tonnes in 2016-17, an increase of 58 per cent. This is indeed a creditable turnaround from the last couple of years, when pulses were one of the major commodities contributing to food inflation because of production shortfalls.
How did this impressive turnaround come about? High market prices of pulses in the last two years and some serious efforts by the government have helped induce an increase in supply. In particular, the liberal increase of nine per cent in minimum support price (MSP) and pronouncements of establishing a buffer stock of pulses to the tune of two million tonnes have encouraged farmers to devote more area to pulses. The favourable monsoon further helped and the production of kharif pulses soared. Arhar production increased by 1.8 million tonnes in 2016-17, a jump of 74 per cent. The corresponding increases for urad and moong have been 45 per cent and 32 per cent respectively. This trend is likely to continue with the expectation of a good rabi harvest as well, due to an increase in MSP by 15 per cent for rabi pulses.
Ironically, this increase in production resulted in a sharp drop in prices. Wholesale prices fell sharply in various markets. In the first week of December 2016 there have been 209, 197 and 785 instances of the market price of arhar, urad and moong falling below the MSP in several mandis in various parts of the country, which is 30, 28 and 112 instances per day respectively. Decline in demand due to cash crunch after demonetisation has aggravated these price declines.
However, absence of effective procurement by public agencies is certainly the most important reason for this price slump. Although MSP is announced for about 25 commodities, procurement takes place only for wheat and rice. Pulses have suffered for a long time due to this lopsided policy. Pulses production is more unstable because of less irrigation and greater pest attacks. Absence of assured procurement by the government made farmers reluctant to cultivate pulses. This is the main reason why pulses are mostly grown on marginal lands and drier regions of the country. Recognising this, the Arvind Subramanian Committee in September 2016 recommended a hike in the MSP and backing it up with effective procurement. The committee has even recommended setting up of a high-level committee to oversee the procurement process.
Despite these recommendations and those of several committees before, procurement is hardly effective and farmers continue to face hardships. There are reports that farmers are being turned away from procurement centres on trivial grounds (Down to Earth, October 1-15). There are also reports of large scale import of pulses for building buffer stocks while domestic procurement remains inadequate. This imbalance also needs to be addressed, in order to ensure that farmers continue to produce pulses. With few international sources of supply, increasing domestic production becomes sine qua non. However, there is a need to avoid the kind of stock pile-ups that are frequently witnessed in case of rice and wheat, which is the result of lopsided pricing and stocking policies.
An urgent procurement mechanism needs to be set in place for pulses to avert imminent misery to pulse farmers but excessive procurement needs to be avoided.
The downward spiral in prices started in July this year. Not only inflation, which is based on year-on-year calculations, but actual prices also have shown a decline in the last three months — the declines of various pulses ranging from three per cent to 14 per cent in major metro cities. This improvement is mainly due to an impressive increase in the kharif pulse production — from 5.5 million tonnes in 2015-16 to 8.7 million tonnes in 2016-17, an increase of 58 per cent. This is indeed a creditable turnaround from the last couple of years, when pulses were one of the major commodities contributing to food inflation because of production shortfalls.
How did this impressive turnaround come about? High market prices of pulses in the last two years and some serious efforts by the government have helped induce an increase in supply. In particular, the liberal increase of nine per cent in minimum support price (MSP) and pronouncements of establishing a buffer stock of pulses to the tune of two million tonnes have encouraged farmers to devote more area to pulses. The favourable monsoon further helped and the production of kharif pulses soared. Arhar production increased by 1.8 million tonnes in 2016-17, a jump of 74 per cent. The corresponding increases for urad and moong have been 45 per cent and 32 per cent respectively. This trend is likely to continue with the expectation of a good rabi harvest as well, due to an increase in MSP by 15 per cent for rabi pulses.
Ironically, this increase in production resulted in a sharp drop in prices. Wholesale prices fell sharply in various markets. In the first week of December 2016 there have been 209, 197 and 785 instances of the market price of arhar, urad and moong falling below the MSP in several mandis in various parts of the country, which is 30, 28 and 112 instances per day respectively. Decline in demand due to cash crunch after demonetisation has aggravated these price declines.
However, absence of effective procurement by public agencies is certainly the most important reason for this price slump. Although MSP is announced for about 25 commodities, procurement takes place only for wheat and rice. Pulses have suffered for a long time due to this lopsided policy. Pulses production is more unstable because of less irrigation and greater pest attacks. Absence of assured procurement by the government made farmers reluctant to cultivate pulses. This is the main reason why pulses are mostly grown on marginal lands and drier regions of the country. Recognising this, the Arvind Subramanian Committee in September 2016 recommended a hike in the MSP and backing it up with effective procurement. The committee has even recommended setting up of a high-level committee to oversee the procurement process.
Despite these recommendations and those of several committees before, procurement is hardly effective and farmers continue to face hardships. There are reports that farmers are being turned away from procurement centres on trivial grounds (Down to Earth, October 1-15). There are also reports of large scale import of pulses for building buffer stocks while domestic procurement remains inadequate. This imbalance also needs to be addressed, in order to ensure that farmers continue to produce pulses. With few international sources of supply, increasing domestic production becomes sine qua non. However, there is a need to avoid the kind of stock pile-ups that are frequently witnessed in case of rice and wheat, which is the result of lopsided pricing and stocking policies.
An urgent procurement mechanism needs to be set in place for pulses to avert imminent misery to pulse farmers but excessive procurement needs to be avoided.
The author is professor, Institute of Economic Growth, Delhi University
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
