Not On The Pulse: Subramanian Panel Sticks To Standard Tropes On The Problem Of Pulse Prices

Is it surprising, really, that the Arvind Subramanian-headed committee on Incentivising Pulses Production Through Minimum Support Price and Related Policies has recommended handsome hikes in the MSP? Or stepped up procurement efforts by the government? Or even doing away with stock limits and export bans?

These are all well-known and oft-repeated solutions to the problem of pulse prices, which has been building up over the years.

At a press conference on Friday (16 September), Subramanian joked that pulses had been the stepchild of Indian agricultural policy. The story is pretty well known – acreage under pulses as well as production and yield have all stagnated over decades, even as demand has jumped from 16 million to 24 million tonnes in just a decade. The reason is also well known – handsome hikes in MSP and government procurement at MSP have been confined to wheat and rice, leaving no incentive for farmers to grow pulses. The Subramanian committee suggests that the production of pulses should grow at eight percent a year, more than double the current growth rate of three percent a year.

The government had already started increasing the MSP of pulses – between the 2014-15 and the 2016-17 kharif seasons, the hikes have been in the range of 13-16 percent – and this has resulted in more area being brought under pulses this year. But the government’s MSP hikes were based on the methodology followed by the Commission for Agricultural Costs and Prices (CACP) – taking account of the cost of production and a few other factors. The Subramanian committee suggests that the MSP of pulses also factor in risks (which is higher for pulses) as well as externalities (positive, because pulses require less water, fewer fertilisers and do not deplete the soil of nutrients). It has arrived at a figure of Rs 70 a kg for tur, which is higher than the current Rs 50 a kg.

That this needs to be accompanied by increased procurement is also a well-accepted fact. The current spurt in the production of pulses is putting pressure on prices. The moong crop is just coming into the market, and prices are trending lower than last year. Against the MSP of Rs 5,225 a quintal, according to Sreedhar Nandam, vice-president, supply chain management, National Collateral Management Services Limited (NCML), market prices are in the range of Rs 4,600-4,800 a quintal. Even the landed price of imports is lower – Rs 4,500-4,700 a quintal.

The committee suggests that the government undertake procurement operations on a war-footing, with weekly monitoring by a high-level committee comprising the ministers of finance, consumer affairs and agriculture and the principal secretary to the Prime Minister. The report suggests building up a buffer stock of two million tonnes “gradually but opportunistically, when prices are relatively low.” This, incidentally, is the same as the target the government itself announced recently.

But is hiking the MSP and building up a buffer alone enough? The Pulses in India seminar organised by the Bharat Krishak Samaj threw up other issues which are not part of the current discourse on pulse prices.

One, when market prices fall below MSP, how much should the government procure over and above what is needed for the buffer stock? As Niti Aayog member Ramesh Chand pointed out at the seminar, if the government buys the entire marketable surplus of pulses, will that not amount to nationalisation of trade?

The report deals with this, pointing out that “the government must reasonably assess its procurement capability” and suggests other price management policies like lifting stock limits and export bans. These, too, are oft-repeated solutions. Stock limits, which many states have set at very low levels, actively discourage the organised private sector from coming into the trade. This leaves the field open to only the small players, who will not have the resources to invest in modern facilities – necessary to store pulses over long periods. As a result, they also buy in smaller quantities, which becomes a problem in times of a good crop.

What’s more, stock limits also lead to raids against supposed hoarding. Last year, when pulse prices sky-rocketed, raids yielding several thousand quintals of pulses were given wide publicity. But, as a study done by NCML for the department of consumer affairs showed, this was not even one percent of total production. Addressing the Pulses in India seminar, Nandam pointed out that such raids may have some effect on local prices, but they do not have much impact at a macro level.

Unfortunately, export bans and imposing stock limits (accompanied by raids), as well as bans on futures trading, make for good optics even if they do not make much economic sense. So governments are unlikely to junk these.

The ban on futures trading has also been found to be ineffective in curbing price volatility. Sarat Mulukutla, chief, commercial segment of NCDEX, pointed out in his address to the seminar that the volatility in chana prices was 15.8 percent before futures trading was banned on 27 July. After the ban, volatility was 23.5 percent. The volatility for arhar, he said, was even higher, when this dal is not traded on the futures market at all.

Unfortunately, the Subramanian committee report stops short of expressly listing out the ineffectiveness of such meddling in the market as well as advantages of these reforms and making out a strong case for them. Instead, it talks about creating yet another institution for procurement and stock management. The proposed organisation will be a public-private partnership between the government, public sector institutions and credible private players. The committee suggests that the new institution be allowed to undertake buying, stocking and trading operations in other agricultural produce as well.

What is the point in creating yet another organisation when the Food Corporation of India (FCI) and NAFED are already present? The FCI is notorious for its inefficiency and corruption and the Shanta Kumar committee’s recommendation to reform it have been put on the back burner.

The second issue flagged at the seminar was about how and where the pulses will be stored.

It is estimated that seven and a half percent of stored pulses go waste. Unlike rice and wheat, which can be stored for a few years, pulses cannot be stored for more than six months. They tend to absorb moisture and are susceptible to infestation by insects and pests. Therefore, they need to be stored in dehumidified conditions (moisture levels should not exceed 10-12 percent), with temperature controlled at 50 degrees centigrade. But even the use of modern technology to keep moisture content low and to maintain storage temperature at optimum levels will increase shelf life to only one year.

Given this, are government storage facilities, designed mainly for cereals, ideal for storing pulses? If pulses only get spoilt in government warehouses, building up a buffer stock is clearly not going to help. The answer would be to rely on private storage facilities that are far more modern. There is an abundance of private sector storage facilities in states like Rajasthan, Gujarat and Madhya Pradesh, among others. The space in these is available for Rs 60-80 a tonne, which is almost half of the cost of storage in FCI godowns. If the government is going to undertake a massive procurement operation, it needs to explore various storage options. This also strengthens the case for bringing back the organised private sector into the food chain.

The focus on upping the production of pulses misses out a third issue that came up at the seminar. The supply problem in the case of pulses is not just about low acreage and yields. Quite a bit of even what is farmed gets lost during processing. The normal recovery rate of arhar/tur from mills is 84 percent; in India, it is 72 percent. The government is apparently promoting mini dal mills for primary processing in order to reduce losses. Only time will tell how effective that will be.

The Subramanian committee could not go into some of these issues because its brief was about incentivising production through the price mechanism. But serious and early action needs to be taken on issues relating to processing and storage as well. Otherwise, a year or so down the line, there may be a different kind of problem with pulses.