Why spikes in pulses' prices is a recurring problem

Prices of pulses have spiked four times in the last 10 years. But we are yet to take any corrective action

If anyone thought that the spike in price of some pulses seen few months back was a one-off incident, having little precedence, a CRISIL analysis shows that infact from 2004-05 to 2014-15, i.e a period of 10 years, prices of pulses have spiked four times, on average after every three years.

The most common reason for the spike in prices have been weather-induced supply disruption, which gets aggravated because of persistent increase in demand, unmatched by a similar rise in production.

An element of hoarding also plays its part as was the case in 2015, when traders illegally stored over 200,000 tonnes of pulses to cash on a price increase.

Pulses along with onion, tomatoes and potatoes have perhaps been the four most vital commodities which have seen some very volatile price movements in the last decade or so.

Interestingly, in all four of them production is concentrated in a few areas while the crop is consumed across the country. This means even a small drop in output in one region leads to almost simultaneous nationwide increase in rates.

Take for example in pulses, over 70 per cent of the country’s annual production comes from Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh.

Of these states, all except Rajasthan have seen acute monsoon deficiency in four out of the last eight years. This is good enough reason for prices to remain elevated as less than 16 per cent of the total area in which pulses are grown are under irrigated.

Over time, pulses output has grown less than 2 per cent per year on an average in the last 20 years, while acreage has grown even lesser at 0.8 per cent, which is why yield rose by only 0.9 per cent during the period.

Pulses are a less preferred crop, and just around 16 per cent of the total acreage is under irrigation, while in the case of wheat and rice, it is almost 60-70 per cent.

The precarious situation offers a golden opportunity to traders and importers, who tend to jack up global rates as soon as there is an intimation of any small drop in production anywhere in the world.

The global market of pulses is small of which India routinely imports around 4 million tonnes.

Therefore, any drop in domestic production immediately leads to spike in international prices making imports costlier as happened in 2015, when import tenders floated by government agencies were repeatedly cancelled as the price quoted was too high.

The big point to note here is the fact that despite being a recurrent problem with almost similar causes every year, we are yet to find a permanent solution to this issue. This speaks volumes about the country’s farming policy.  

Putting pulses into the Rashtriya Krishi Vikas Yojana (RKVY) which ensured targeted interventions was good to raise output, but without proper purchase mechanism, there was limited assured market for growers. 

At a time, when pulses has to compete with crops like sugarcane, wheat and rice, unless there is a regular purchase policy and process, it would be difficult to convince growers to shift towards pusles. 

A recent Central initiative to create a buffer stock of almost 0.5 million tonnes of pulses starting from the current rabi season is a good beginning, but it needs to be sustained. 

Infact, another option could be to create a agency on the lines of Food Corporation of India (FCI) to ensure regular procurement of pulses, onions, potatoes for creating a buffer. A reorientation in the current role, scope and ambit of FCI could also be considered to make it more of a procurement agency for pulses, onions and tomatoes and not only of wheat and rice.