Thursday, January 14, 2016

Agricultural Commodities - Pulses

Market at the micro level has to serve three main stakeholders with different expectations. Farmers wants good price and constant demand, distributor wants fat margin and consumer wants low prices and quality product. In the market scenario at macro level- production of the pulses, demand-supply conditions within India, volatility in global commodity prices, variation in exchange rate, policy of the government and surge in import can lead to determination of final price of the any commodity.

This article series aims to provide an introductory overview on the agricultural commodities in India. The first article of this series will carry the discussion by offering an analysis of the pulses in India. India is the world’s largest pulse producing, consuming and importing country. Bengal Gram (Desi Chick Pea / Desi Chana), Pigeon Peas (Arhar / Toor / Red Gram), Green Beans (Moong Beans), Chick Peas (Kabuli Chana), Black Matpe (Urad / Mah / Black Gram), Red Kidney Beans (Rajma), Black Eyed Peas (Lobiya), Lentils (Masoor), White Peas (Matar) are major pulses grown and consumed in India. During 1950-51 to 2013-14, area under pulses increased by 31% from 19.09 million hectares [mha] to 25.23 [mha] and productivity per hectare increased by 46% from 441 kg to 764 kg with significantly disappointing 0.64% CAGR of productivity. Even the area under cultivation for pulses has seen marginal increment, there is shift in the quality of land used for pulses production.
Green revolution has pushed pulses cultivation in tough terrains resulting in declining productivity. As pointed out by Santa Kumar Committee Report: "GoI needs to revisit its MSP policy. Currently, MSPs are announced for 23 commodities, but effectively price support operates primarily in wheat and rice and that too in selected states. This creates highly skewed incentive structures in favour of wheat and rice. While country is short of pulses and oilseeds (edible oils), their prices often go below MSP without any effective price support. Further, trade policy works independently of MSP policy, and many a times, imports of pulses come at prices much below their MSP. This hampers diversification." Hence, the government needs to create a crop-neutral incentive structure for farmers, which is at present skewed in favour of rice, wheat and sugarcane.
Pulses have low carbon emission and water needs which make them ideally suited in India’s farming system. Rainfall in India is highly unreliable both in time and geography, leading to fluctuation in the production. The major driver of food inflation was the hike in prices of pulses, which was caused by the crop loss due to untimely rains. India’s pulses production fell from 19.25 million tonnes in 2013-14 to 17.3 million tonnes in 2014-15, while imports rose from 3.18 million tonnes in 2013-14 to 4.58 million tonnes in 2014-15. With the sky rocketing prices of the pulses, the government has taken haste decision to import 7,000 tonnes of Tur (5,000 tonnes earlier, and 2,000 tonnes now) to tame prices. In a country where the consumption of tur daal hovers between 3.3 to four million tonnes, aiming to control rising prices by importing 7,000 tonnes tur shows both the policy failure in pulse price management and strong cartel of importers artificially jacking up the prices. Ineffective policy measures appear to be knee-jerk reactions more than calibrated responses of policymakers.

No pulses are currently traded in future in international markets and only Chana is traded in future in domestic markets. The Securities and Exchange Board of India (SEBI), which also regulates the commodities futures market, may consider banning forward trading in chana (gram) as part of the government’s measures to bring down prices of pulses. By suspending futures and forwards markets, the government can simply shot the messenger. This is only evidence of a rather sloppy conceptual framework of policymakers. Merely scapegoating traders as  “hoarders” and “speculators” is not going to be effective in today’s times. Also, traders hold the strings to the political purse, and a crackdown against hoarding would be damaging for ruling political party. Forwards and futures markets are supposed to give signals for effective price discovery and efficient price risk management. It is therefore necessary to develop suitable futures contracts for major pulse varieties separately, as also for all pulses together in the form of index futures.

Pulses are now termed as crops for poor, largely cultivated in marginal lands prone to poor irrigation supplies. Low pulse yield in India compared to other counties is attributed to poor spread of improved varieties and technologies, abrupt climatic changes, vulnerability to pests and diseases, and generally declining growth rate of total factor productivity. Lack of effective market news system and existence of different grades and qualities have also contributed to these imperfections in market. Appropriate reporting with quality differences and graded produce could go a long way to reduce the high price differentials, spatial as well as temporal.

Readers can also read a good article in IPGA examining the price issue of pulses. Jokes comparing  butter-chicken  to pulses are already in the market, and the trend doesn't look good for next year. It will be much shame for current government promoting 'Make in India' campaign while importing pulses, oil-seeds etc from foreign nations. India government needs to get the act together if they are truly committed to the food security of our fellow citizens.

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