Pulses farmers’ profit falls sharply in 2016-17 due to adverse govt policies, record harvest: CRISIL
New Delhi: The profitability of poor farmers in India who are dependent on rain-fed irrigation and grow pulses fell sharply during 2016-17 due to a record harvest and adverse government policies, said a report released on Monday.
Average profit margin of farmers on all pulse varieties except gram (chickpeas) fell by 30% in 2016-17 year-on-year, said the report ‘Pulses and Rhythms: Analysing volatility, cyclicality and the cobweb phenomenon in prices’ by CRISIL Limited, a ratings agency.
Pulse prices are not only highly erratic but also follow a cyclical pattern, shooting up every 2-3 years, the report said, adding that the period 2006-2017 witnessed four such cycles with trend rate of inflation peaking at 40% above the zero-level and the troughs 25% below it.
The steepest peak in the cycle came in when price inflation peaked 49% in November 2015 and fell sharply to -32.6% in July this year, the report said. It added that a ‘cobweb phenomenon’ is also at play wherein production of pulses respond to prices with a lag, causing a recurring cycle of rise and fall in both output and prices.
“This has to do with the fact that farmers base their sowing decisions on the prices observed in the previous period, and accordingly over or under-produce... triggering a price cyclicality,” the report said.
Following a normal monsoon in 2016, production of pulses rose 40% to 23 million tonnes in 2016-17. In India, data from the report shows, 5% of household food expenditure is spent on pulses, 82% of which is grown in unirrigated areas.
“While growers of most varieties have seen their profits eroding, those who chose to grow chickpeas bucked the trend as it is open to exports and farmers based their planting decision on international prices,” said Dharmakirti Joshi, chief economist at CRISIL.
Joshi added that the solution to volatile prices which hurt both consumers and farmers is a nimble trade policy which responds in time to production numbers. “A well-regulated futures market can also help stabilise prices and help farmers take better decisions,” he said.
Falling prices of pulses, oilseeds and vegetables, following a record harvest in 2016-17 led to protests by farmers in several states demanding a waiver of farm loans and increases in government support prices for crops.
According to the CRISIL report, while government restrictions on export and private stockholding limited the absorption of excess supply of pulses in 2016-17, a dent in domestic consumption following the demonetisation drive in November 2016 also contributed to the decline in prices.
The report suggested effective support price-based government procurement, an open trade policy, higher investments in irrigation and effective markets—from improving physical infrastructure to developing a well-regulated futures market—to tame recurrent volatility in pulse prices.
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