Despite high pulses procurement, farmers in trouble
Given the likely 22 million tonne production of pulses this year, up more than a third compared to last year, it is not surprising prices have crashed. In the case of tur, for instance, retail prices are down from R118 per kg in Delhi on October 1, 2016 to R89 on March 1. As a result of the surge in pulses inflation last year, rabi sowing increased by more than 11%. While it is not clear what will happen next year, if it goes the boom-bust way of many other crops, production will slow and prices will rise again. It was to try and stop this cycle, and to incentivise production that, last year, apart from hiking procurement prices, the government had decided to hike its procurement to 1 million tonnes.
Since 1 million tonnes is small compared to the total crop output, not surprisingly, while the government is very near reaching its procurement target, prices in most centres are 20-30% below the minimum support price (MSP). This was something most predicted even at the time the government was finalising its policy and that is why, the panel headed by chief economic advisor Arvind Subramanian had talked of various other measures that needed to be taken. An appendix to the report talked of how the Essential Commodities Act had discouraged investment in large-scale marketing infrastructure like cold storages; the government continuing with the old policy of export bans and lowering stocking limits for wholesalers/retailers each time there is a surge in prices is another face of the same policy that discourages the private sector from emerging as a viable alternative to government purchases. The report also talked of the need to introduce futures markets—that is the most credible way of developing long-term markets and is a much better alternative to government procurement which, by its very nature, tends to be limited in both volume as well as to just a few states.
Indeed, soon after the government came to power, the Shanta Kumar report on revamping FCI had argued for using futures instead of government procurement in commodities like wheat and rice. Since FCI is an inefficient procurer, Shanta Kumar recommended using part of the savings of reduced buffer-stock operations to make annual payments to farmers—this would boost earnings and allow them to grow crops according to what the markets wanted instead of just the wheat and rice that gave them safe returns in the states where FCI did substantial MSP-based procurement. While the government did precious little with the report, the sad experience with pulses should convince it that the MSP-cum-procurement policy simply cannot deliver; the sooner this is junked in favour of more market-oriented policies, the better.