Farmers’ income from pulses fell 16% in FY17

CRISIL study says strengthening futures market, allowing export in times of excess, increasing irrigation and developing storage are required

The profit margin for cultivators of pulses fell 16 per cent on an average in 2016-17, due to record production, says CRISIL Research. It has issued a report on volatility and cyclicality in these prices. If chana (Bengal gram) is excluded, says the study, the margins fell 30 per cent.

While the sale price fell, the cost of cultivation continued to rise, up 3.7 per cent in agriculture year (AY; July to June) 2016-17, compared with one of 2.8 per cent the previous year. Hence, increase in the central government's Minimum Support Price (MSP) did not stem the fall in earnings.

Production was a record 22.95 million tonnes (mt) in 2016-17, about 40 per cent more than in 2015-16 and 19 per cent higher than the previous record of 19 mt in 2013-14.

The study says the government has clearly been unable to address the cyclicality in prices of these items. Doing so is important, since “pulses has five per cent share in total household food expenditure in India and in the past 12 years, the average (annual) inflation in pulses' price has been 12 per cent”, says Dharmakirti Joshi, chief economist at CRISIL.

He adds, “The pronounced cyclical pattern hurt both producers and consumers. It is time the government initiated steps to smoothen prices through a mix of effective MSP dispensation, open trade policy and well-functioning markets. Simultaneously, the crop needs to be de-risked, by increasing the irrigation buffer.”

Last year, despite the fact that the MSP was raised for the five major pulses by an average of 12 per cent, wholesale prices (except of Bengal gram) declined eight per cent. Market prices even fell below the MSP for arhar (red gram) and moong (green gram) during the harvest season in 2017, with the bumper crop and cheaper import. Between October 2016 and February 2017, modal prices of arhar and moong were trading below MSP in the major wholesale markets of Karnataka, Maharashtra and Telangana.

As a result, shows data as on last Friday, pulses sowing had decreased from 14.3 million hectares at the time last year to 13.76 mn. India’s consumption has also grown, being price-elastic. Average yearly import used to be four mt and domestic production around 18 mt. However, in 2016-17, despite nearly 23 mt of output, import crossed six mt.

CRISIL suggests a multi-pronged strategy. It notes the price of chana (Bengal gram) has not seen a dip below the MSP; it has generally been a remunerative crop among pulses. What has helped here is that it has a high share of 40-45 per cent in production and over 60 per cent in export of pulses. Says the report: "Since there is no restriction on (its) export, profitability remained higher for its farmers, as the international market was ready to absorb the supply in excess of domestic demand.” D K Joshi recommends, “Flexibility in export policy, in terms of permitting export in times of excess production, can provide adequate cushion against supply shocks.”

Pravin Dongre, chairman, India Pulses & Grains Association, says: “Pulses selling below the MSP will also get support if export is opened. Such policies might also attract substantial foreign investment in the sector, as India is the largest market for pulses. It will give a much needed boost to the dal processing industry and returns to farmers will certainly improve.”

The large NRI population pays huge premiums to procure processed pulses abroad and this could go to Indian exporters if shipments are opened. For a longer term solution, CRISIL recommends four things. One, raising of procurement under the MSP scheme. Two, flexibility in export policy, with restrictions on shipments to be eased in times of excess production. Three, since 82 per cent of the area under pulses is unirrigated, invest in expanding of water conservation techniques to reduce farmers’ dependence on the monsoon. Four, improving of physical and market infrastructure, by increasing of storage and strengthening the futures and forward markets.