Are retailers to be blamed for the spike in pulse prices?

The difference between wholesale and retail prices was as high as 52% for a variety of pulses, shows an analysis of available data

There is a wedge between retail and wholesale prices of pulses.

 Photo: Mint
There is a wedge between retail and wholesale prices of pulses. Photo: Mint

New Delhi: High prices of pulse varieties have been a constant point of worry for consumers and governments over the past year. While consecutive years of deficit rain cut supplies, leading to higher imports and a spike in prices, what went unnoticed is the divergence between retail and wholesale prices, raising the question if retailers are responsible for jacking up prices.

An analysis of price data show a progressive rise at every stage—from the price of raw pulses to processed wholesale rates and finally retail prices that the consumer pays. For instance, on 30 June in Mumbai, wholesale price for arhar (pigeon-peas) was Rs.115 per kg, while its retail price was Rs.155 per kg, shows data from the food and consumer affairs ministry. On the same date, the price of un-milled or raw arhar was Rs.90 per kg. This means a difference of 27% between retail and wholesale price and 63% between retail and un-milled prices. On an average, the wedge between retail and wholesale prices for arhar varied between 25% and 34% during April-June this year.

While the difference between raw and processed pulses can be explained by the fact that milling leads to a 30%-40% reduction in volume—which means 1kg of raw arhar will yield no more than 700gm of processed pulse ready for consumption—what explains a 27% mark-up in retail?

“The difference between retail and wholesale prices should not be more than 5%-10% but often the gap is as high as 50%,” said a trader, speaking on the condition of anonymity. “Over the past year the wedge between retail and wholesale prices has increased and this is a reason why higher imports have not cooled prices,” he added.

Data on domestic availability of pulses bolsters this point. In 2014-15, production of pulses stood at 17.15 million tonnes (mt) and India imported 4.58 mt, implying a domestic availability of 21.73 mt. In 2015-16, production was lower at 16.47 mt but imports surged to a high of 5.79 mt, or a domestic availability of 22.26 mt.

Now, domestic prices will skyrocket as they did only if import prices were substantially higher. This wasn’t the case.

According to the agriculture ministry, India imported 4.58 mt of pulses in 2014-15 at a cost of Rs.17,063 crore, or at an average price Rs.37 per kg. The corresponding import price in 2015-16 was Rs.44 per kg, or a jump of 19%. In comparison, retail prices between April 2015 and June 2016 rose by 75% for arhar, 110% for urad and 65% for chana.

Also, the wedge between retail and wholesale prices is not limited to pigeon peas. For chana dal, the difference was in the range of 5%-33% during April to June this year in Mumbai. For urad, the wedge was 14%-28% and for masoor 33-52%.

This means, retailers are also responsible for a spike in prices, not just deficit rains and falling supplies.

“Somehow the supply and demand in pulses did not match due to unscrupulous elements in the market,” said a former official with the agriculture ministry, who did not want to be named. “In cereals you do not face such a problem as the government is a large stockholder (which means stocks can be offloaded to tame prices). But for good the centre is finally moving in the right direction by creating a buffer stock. A stock size of 10-15% of the market will end speculation,” he said.

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