The Vagaries of Pulse Prices

Context

The Prices of the pulses in India have always been an issue. On an average, the peaks have hovered 40 percentage points above the “zero” level. Somewhat predictably, pulses have seen an average annual inflation rate of 12%—the highest among food crops—in the past 12 years.

Pulses in India

• Pulses are annual leguminous crops yielding between one and 12 grains or seeds of variable size, shape and colour within a pod, used for both food and feed.
• Besides serving as an important source of protein for a large portion of the global population, pulses contribute to healthy soils and climate change mitigation through their nitrogen-fixing properties.
• 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.
• India is the largest producer (25% of global production), consumer (27% of world consumption) and importer (14%) of pulses in the world.
• The main regions with high productivity are Punjab, Haryana, Western Uttar Pradesh, West Bengal delta region, coastal Andhra Pradesh, Tamil Nadu, Kerala, coastal and eastern Karnataka and some parts of Maharashtra.
• Though pulses are grown in both Kharif and Rabi seasons, Rabi pulses contribute more than 60 per cent of the total production.
• With the advent of Green Revolution, which promoted rice and wheat using external inputs and modern varieties of seeds, pulses were pushed to the marginal lands. This resulted in decline in productivity and land degradation.
• Thus, pulses are still cultivated on the marginal and sub marginal land, predominantly under unirrigated conditions. The trend of commercialisation of agriculture has further aggravated the status of pulses in the farming system.
• It is estimated that pulses contain 20-25 per cent of protein by weight and have twice the protein available in wheat and thrice that is present in rice.
• In addition to its nutritional advantage, pulses have low carbon and water footprints which make them an integral part of the sustainable farming system. As per estimates, water footprints for producing one kilogram of meat is five times higher than that of pulses.

The ‘rise’ and ‘fall’ cycle of Pulse prices

• The current cycle has seen extraordinary volatility. The steepest peak (49%) was in November 2015 and the steepest fall (-32.6%) in June. Also, the price fluctuation has been broad-based (across pulses) compared with earlier cycles, where inflation was driven by individual categories of pulses.
• This dip is also different from those observed in the past, since more than half the price rise seen in the previous year has been wiped out.
• Usually,Hoarding, rising transportation costand a lack of production are the main reasons behind rise in retail prices of  pulses in the country while excessive production during a good monsoon, increased imports, etc are causes for fall in prices.
• A bumper crop in fiscal 2017 (40% jump in production), accompanied by six million tonnes of imports and exports and stocking restrictions, led to oversupply and price collapse.
• A study of five key pulses—tur, urad, gram, moong and masur—shows that they all display a “cobweb” phenomenon, wherein production responds to prices with a lag, causing a recurring cycle of rise and fall in output and prices.
• This reflects the behaviour of farmers who base their sowing decisions on the prices observed in the previous period, and accordingly over- or under-produce crops, triggering price cyclicality. Gram is, however, an exception. Here, production responds more to global price trends than domestic, possibly because of open trade and exposure to the forwards mar

Steps needed to stabilise the Prices

An effective MSP policy

MSPs should help smoothen prices and act as price signals when procurement is effective. This reduces the farmer’s risk.

In pulses, however, although MSPs are announced, procurement has been relatively weak and often, pulses are sold below the MSP and even below the cost of production.

For instance, moong and urad are now selling below their production cost. Therefore, the government should raise procurement of pulses under the MSP scheme to make it effective.

In addition, the procurement infrastructure needs to improve and focus sharpened on raising awareness of and access to government agencies procuring crops.

The price stabilization fund could be used to improve procurement infrastructure.

Buffer stocks can be created during years of excess production and used in times of shortfall. This should be the priority of the government till infrastructure and markets for agricultural products develop.

A nimble trade policy

The government has prohibited exports of pulses, except gram and organic pulses, since June 2006.

The restriction, which was supposed to be valid for six months, has been extended from time to time, with the last extension order in March 2014.

The case of gram has showed that the international market can absorb production in excess of domestic demand. Therefore, flexibility in export policy, in terms of permitting exports of the restricted pulses during times of excess production, will help provide some cushion.

Developing an irrigation buffer

Only a fifth of the area under pulses has irrigation support. This exposes production to the vagaries of the monsoon and amplifies the price cyclicality.

Hence, there is a need to develop an irrigation buffer. Promoting water-conserving irrigation techniques such as drip irrigation can help.

Well-regulated markets

Developing agricultural markets is always a tough ask, particularly for essential commodities such as pulses that are prone to price manipulation. Most farmers sell their products locally below MSP due to lack of transportation and the long distances to mandis.

The government should reduce the transportation costs of farmers by linking them to markets with better roads. To incentivize private sector participation, ad hoc restrictions on stocks should be avoided.

Forward contracts help reduce the uncertainty of future market prices. The government can use future market signals to fix MSP values and make appropriate interventions before crises occur. The farmers can then make their decisions on the basis of expected prices and not past prices.

Government Schemes so far

National Food Security Mission

Food Security Mission was launched in 2007, which comprised rice, wheat and pulses to increase the production of rice by 10 million tons, wheat by 8 million tons and pulses by 2 million tons by the end of the Eleventh Plan. (Targets were duly achieved). The Mission is continued during 12th Five Year Plan with new targets of additional production of food grains of 25 million tons of food grains comprising of 10 million tons rice, 8 million tons of wheat, 4 million tons of pulses and 3 million tons of coarse cereals by the end of 12th Five Year Plan. Mission also aims at improving soil fertility and improving employment opportunities.

(Note that in 12^th FYP, it includes coarse cereals and commercial crops too.)

Mission during 12^th FYP has five components

1. NFSM- Rice
2. NFSM-Wheat 

3. NFSM-Pulses: This mission is further supplemented by Accelerated Pulses Production Program (A3P). India is biggest producer of pulses at 25% of world’s production and still it has to import pulses. This is mainly because of low yields. A3P aims at Integrated Nutrient Management and Plant protection to enhance yields and productivity. 

4. NFSM-Coarse cereals

5. NFSM-Commercial Crops

Integrated Scheme for Oilseed, Pulses, Oil Palm and Maize (ISOPOM)

Four erstwhile schemes of Oilseeds Production Program, Oil palm Development Program, National Pulses Development Program and Accelerated Maize Development Program – have been merged into one Centrally Sponsored ‘Integrated Scheme of Oilseeds, Pulses, Oil palm and Maize’ (ISOPOM) being implemented from 1.4.2004.

Different components (i.e. pulses, oil palm etc.) of scheme are in

force in different states as per dominant cropping pattern of the state. For e.g. for oil palm it is applicable in 9 major oil palm producing states. It aims to promote crop diversification and provides focused approach by giving financial assistance in purchase of various agriculture inputs such as seeds, agro chemicals, technology, expertise, infra etc.