The minimum that the govt can do is to remove all restrictions on a free market for pulses
Last year, roughly at this time, the price of tur dal (pigeon pea) in the retail market was hovering around R180/kg. Prices of other pulses were not far behind. They were all spiraling up due to back-to-back droughts during 2014-15 and 2015-16. Production of all pulses had plunged to 16.5 million metric tons (mmt), and imports shot up to 5.8 mmt. The rising demand for imports from India also put international prices under pressure, especially chickpeas from Australia.
This caused hardships to the poor as dal was slipping away from their dal-bhat or dal-roti, their survival food. Concerns soared at the policy level to find ways and means to augment pulses’ supplies in general and tur in particular. Long-term agreement was signed with Mozambique for import of pulses.
Fire-fighting high pulse inflation, the Union government set up a committee under the chief economic advisor (CEA) to solve this problem forever. It was important to have a fresh look at problems of the sector, as over the last 25 years, the Union government policy to achieve self-sufficiency in pulses had failed miserably. So, it was clear that business-as-usual will not deliver and that we needed major policy changes.
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One of the key findings of that committee was that if farmers have to be incentivised to grow more pulses—and over a larger irrigated area—they had to have sufficient profit from the crop. Given the levels of technology, the committee estimated that if farmers get about Rs 7,000/quintal for their produce, then pulses can compete with other crops. The ongoing minimum support prices (MSP) of kharif pulses hovered between Rs 4,625/quintal for tur and urad to Rs 4,850/quintal for moong. A jump from these levels to Rs 7,000/quintal in one go was considered politically difficult, and therefore, a two-year deadline had been set. But when the MSP for 2016-17 crops were announced, it was just Rs 5,050/quintal, including bonus, for tur and urad, and Rs 5,225/quintal for moong, much below their respective market-price.
Farmers responded to high market-prices by bringing more area under pulses, and good rainfall helped them to reap a bumper harvest in 2016-17. Tur production, for instance, shot up by a whopping 65%, from 2.5 mmt to 4.2 mmt, while overall pulse production went up by 33%, from 16.5 mmt to 22 mmt. The result was a massive drop in market prices of tur, from about Rs 10,000/quintal in September-October 2016 to Rs 4,000-4,500/quintal in February-March 2017—again, way below MSP. Private traders were not allowed to hold stocks beyond a limit, exports were banned, and government procurement was not enough to hold the floor at MSP. Obviously, such low prices do not give much profit to pulse producers in relation to competing crops in the region. So, hoping that farmers will remain upbeat on pulses and bring more irrigated area under these crops will remain a distant dream. The usual roller-coaster of high and low prices is likely to continue.
But all is not lost yet. There is still a chance that the Union government can reverse the situation, if it gets into action right away. Chickpea (chana) has started arriving in the markets. Chickpea is India’s largest leguminous crop, accounting for more than 40% of total pulse production. Last year, chickpea production, as per government estimates, had fallen to 7 mmt, although the market assessment was an even lower 6 mmt. But this year, chickpea production is expected to be around 9.1 mmt, a jump of 29%. As a result, chickpea prices too have been tumbling down. Although, they are still a little above MSP, it won’t be a surprise that they also go below MSP very soon, as did the tur prices.
Urgent action is needed if we are serious about solving the problem. The minimum that the Union government can do is to give farmers a level playing field by removing all restrictions on the functioning of free markets. This involves action on five fronts:
– Remove stocking limits on private trade so that they can buy from the market and store it. This policy should be announced at least for the next three years, if not more, so that private players are encouraged to buy and build ample storage capacity;
– Abolish ban/restrictions on exports of all pulses. If farmers can get a better price by exporting, why are they not permitted, especially when the system can’t even guarantee them MSP and imports are fully open? Let it be very clear that any bans/restrictions on exports are simply implicit tax on peasantry, and basically anti-farmer. This must go.
– Introduce futures trading in all pulses. This way, farmers will get price signals well in advance. They should take planting decisions based on likely future prices, and not last year’s market prices. They should be forward-looking, not backward-looking. This will be in sync with markets, and they can reduce risk from planting decisions.
– Step up government procurement at MSP by engaging even private agencies, to build a buffer stock of 2 mmt. This is a golden opportunity and can also save farmers from price crash.
– Impose an import duty of 5-10% at least for the next three-six months to give a cover to farmers in post-harvest months.
Unless these actions are taken immediately, the pulse fire is not going to be hpused. And next year, consumers may be again facing the music of higher prices. Will the Union government bite the bullet?
Ashok Gulati is Infosys chair professor for agriculture, ICRIER