How is the Indian consumer dealing with the rise in prices of dal which is an everyday staple for many?
One of the first things that gets taught in any basic course on economics (or Economics 101) is the substitution effect. This is a scenario where high prices of one commodity pushes consumers into consuming another commodity. If lamb meat prices are too high, consumers move to eating chicken.
If coffee prices go up, consumers may move towards drinking the more affordable tea. In the rational world of theoretical economics this makes tremendous sense. But things are a little different in real life. Take the case of the recent rapid rise in the price of various pulses, tur dal in particular. The prices recently crossed Rs 200 per kg. The annual increase in price has been more than 100%. In this scenario, is the Indian consumer substituting tur dal for something else?
The most logical thing to do would be to consume other pulses like urad, moong, etc. But the prices of other pulses have also risen at a very rapid rate, though not as fast as tur dal. Further, it is also a matter of taste. If the consumer is used to a certain kind of food, it is not so easy to switch to something else overnight.
Unquestionably, there is some substitution going on between different pulses, but large parts of the country are predominantly tur consumers, while, in others, rising incomes create a long-term, superior-good shift towards tur.
There have been several media reports talking about how chicken is now cheaper than dal. It has been jocularly suggested on the social media that chicken being cheaper than dal will lead to regular dal eaters moving to regularly eating chicken. Only if it was as simple as that.
While chicken may be cheaper than dal, it still costs more than Rs.100 per kg and hence, cannot really replace dal as an everyday staple. Dal-chawal or dal-roti is an everyday staple for many Indians. And this cannot be replaced by chicken, unless it starts to cost what dal used to up until a few years back. Also, it is worth remembering here that dal is a huge source of protein. Further, as incomes go up and people eat better, the demand for food high on protein tends to go up.
Data from ministry of agriculture points out that the production of dal has gone up from 14.76 million tonnes in 2007-2008 to 19.77 million tonnes in 2013-2014. In 2014-2015, the total production fell to 17.2 million tonnes. The yield has gone up from 625 kg per hectare in 2007-2008 to 798 kg per hectare in 2013-2014.
Despite an increase in yield as well as production, the troubling point is that the per capita availability of pulses has come down over the long run. A 2014 research report titled India’s Pulses Scenario authored by the National Council of Applied Economics Research (NCAER) points out:
Pulse production has recorded less than one percent annual growth during the past 40 years, which is less than half of the growth rate in Indian human population. Consequently per capita production and availability of pulses in the country has witnessed sharp decline.
The report further points out-
Per capita net pulse availability has declined from around 60 grams per day in the 1950s to 40 grams in the 1980s and further to around 35 grams per day in 2000s. However, in the past four years, there has been significant increase in consumption averaging around 50 grams due to somewhat higher production..
This largely explains why despite an increase in yields as well as overall production, dal prices have gone up over the last few years, with huge spurts in between. How can this be corrected?
A recent report in the Mint points out that a part of the correction has automatically happened through the substitution effect. People are eating more eggs than they were in the past. Between 1961 and 2013, the per capita availability of eggs has jumped from 7 to 58. At the same time consumption data provided by the National Sample Survey Office suggests ‘a declining trend in the consumption of pulses—from 11.8 kg per person per year in 1987-88 to 8.4 kg per person per year in 2009-10.” During the same period ‘the consumption of eggs went up from 6 per year to 21 per year in rural India and from 17 to 32 in urban areas.’
There is a strong positive relationship between the level of income and the consumption of animal protein, with the consumption of meat, milk and eggs increasing at the expense of staple foods.
Nevertheless, what about the vegetarians? A significant proportion of Indians are vegetarians and that also needs to be taken into account. They need to eat dal for their protein needs.
The area under production of pulses over the decades has more or less been stagnant. In 1980-1981, the area under production had stood at 22.46 million hectares. This has increased marginally over the years to 24.79 million hectares in 2013-2014. In fact, the number was at 22.09 million hectares in 2008-2009.
The yield in 1980-81 was at 473 kg per hectare. It has since jumped to 798 per kg hectare in 2013-2014. This is an increase of around 1.6% per year. The Indian population has grown at a faster rate.
Further, as the NCAER research report referred to earlier points out:
Most of the increase in pulse production in recent years has been in gram. 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.
Take the case of tur dal. Between 2007-2008 and 2013-2014, the total production increased from 3.08 million tonnes to 3.34 million tonnes. During the same period the production of gram jumped from 5.75 million tonnes to 9.79 million tonnes. So once one adjusts for the production of gram, the production of other pulses hasn’t gone up by much though their demand has.
A major reason for the area under production of pulses remaining stagnant can be explained the way economic incentives are have been structured for Indian farmers. The incentives are heavily skewed towards production of rice, wheat and sugarcane. And that explains why we have excess stock of these food products.
If prices of pulses are to come down in the years to come, the area under production needs to go up. For that to happen, the economic incentives the way they are currently structured, need to change. And that’s dalonomics 101 for you.