Bad government policy responsible for the collapse in pulse prices, indeed for a similar outcome in most crops
An increase of around 12%, on average, in the minimum support price (MSP) of five pulses in agricultural year 2016-17 should normally have boosted both farmer prices as well as profits. Yet, as the latest Crisil report on pulses points out, prices were not just below the MSP in most mandis, they fell 8% and profit margins contracted 16%—if you remove gram, the fall in profits was as much as 30%. Hardly surprising then that, in the current year, sowing of pulses has fallen by nearly 4%—that of tur/arhar fell 18% because its prices fell the most; the actual production fall for different pulses will depend upon the level of rainfall because 82% of all pulses are produced in rain-fed areas. With a 40% rise in production in 2016-17, certainly prices were expected to come down, but as agriculture economist Ashok Gulati points out, what made things worse was the duty-free imports of 6.6 million tonnes of pulses—naturally enough, the government’s procurement of 1.6 million tonnes, itself a record, was nowhere near enough to help the pulse farmer.
An evocative graph in the Crisil report—Catching fire every 2-3 years—captures the pulses problem very effectively. In 2005-06, with MGNREGA pushing up demand as well as people consuming more proteins, pulses inflation jumped to more than 50%; prices fell the next year with duty-free imports and reduction in stocking limits that forced traders to reduce their stocks. Prices rose again in 2009-10 due to the drought as well as an increase in rural wages … Three consecutive monsoon shocks saw prices climbing dramatically in 2015-16, and then, the combination of a bumper crop and duty-free imports saw prices collapse just as dramatically in 2016-17—from a contraction of 6.6% in January, CPI inflation in pulses fell to -9.1% in February and all the way down to -24.7% in July. Since this cobweb—price cycles affect sowing/production with one year’s lag—has deleterious effects on both farmers and consumers, Crisil offers some long-term solutions which include a more effective MSP policy, greater irrigation to increase the yield and reduction of dependence on the monsoon, and effective markets—this includes developing of more storage facilities and allowing both exports as well as futures markets.
The problem, however, is that this problem doesn’t affect just pulses, it affects almost all crops. In the case of pulses, for instance, Gulati points out, apart from kabuli chana, exports have been banned for more than a decade—if exports were allowed, prices wouldn’t collapse as fast due to a demand-supply imbalance since the export market would absorb part of the production. According to Gulati, India’s pulses are, by and large, export-competitive. Analysis by Gulati and Icrier’s Shweta Saini for a large number of crops in the last decade showed that, for most years, India’s produce was export-competitive. But since, across all governments, the interests of farmers have always come second to that of consumers, the moment food prices rise, exports get banned/choked and stocking limits get reduced—if the wholesale trade has no certainty about how much it can stock, beyond a point, it does not invest in creating more storage, including cold storage. The pity is that the very same solutions, including the need for futures, have been trotted out time and again for decades, but no government has wholeheartedly freed up the farm trade.