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Editorial Simplified

Four steps to stabilize the price of pulses [Editorial Simplified]

Flexibility in export policy, in terms of permitting exports of the restricted pulses during times of excess production, will help provide some cushion. More steps are required to be taken by government, to deal with this mixed problem of pricing & production keeping the farmers in mind.
By IASToppers' Editorial Board
October 10, 2017

Contents

  • Introduction
  • What are the concerns?
  • Four step Solution
  • Conclusion

For IASToppers’ Editorial Simplified Archive, click here

 

GS (M) Paper-3: “Major crops cropping patterns in various parts of the country, different types of irrigation and irrigation systems storage, transport and marketing of agricultural produce and issues and related constraints; e-technology in the aid of farmers”
GS (M) Paper-3: “Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.”
GS (M) Paper-2: “Government policies and interventions for development in various sectors and issues arising out of their design and implementation.”

 

Introduction

  • Pulses have seen an average annual inflation rate of 12%—the highest among food crops—in the past 12 years.
  • A bumper crop production in fiscal 2017 (40% jump in production) accompanied by six million tonnes of imports and the exports and stock restrictions, led to oversupply and price collapse.

What are the concerns?

  • Inflation peaks whenever there is a production shortfall.
  • Consumers worry about high prices of pulses and producers about low prices.
  • The price fluctuation has been broad-based across the pulses when compared with earlier cycles of production.
  • Except Gram, the study of five key pulses—tur, urad, gram, moong and masur—shows that they all display a “cobweb” phenomenon, wherein production responds to prices with a lag, causing a recurring cycle of rise and fall in output and prices.
  • The sowing decisions of the farmers gets affected, that depends on the prices observed in the previous period.
  • The over or under produce crops triggers the price cyclicality further.
  • The production also responds more to global price trends than domestic, due to open trade and exposure to the forwards market.
  • The vulnerable segments are geographically dispersed asset, the poor small farmers have limited access to knowledge and markets that further affects production.
  • MSPs are announced but the procurement has been relatively weak and often, pulses are sold below the MSP and even below the cost of production.
  • Only a fifth of the area under pulses has irrigation support that exposes production to the vagaries of the monsoon and amplifies the price cyclicality.
  • Most farmers sell their products locally below MSP due to lack of transportation and the long distances to mandis.

Four steps to stabilize the price of pulses

Four step Solution:

  1. Effective MSP & Production
  • The government should raise procurement of pulses under the MSP scheme to make it effective.
  • The procurement infrastructure needs to improve and focus sharpened on raising awareness of and access to government agencies procuring crops.
  • The price stabilization fund could be used to improve procurement infrastructure.
  • The government can use future market signals to fix MSP values and make appropriate interventions before crises occur.
  • The farmers can then make their decisions based on expected prices and not past prices.
  1. Flexible trade policy
  • Flexibility in export policy with regards to permitting exports of the restricted pulses during times of excess production, will help provide some cushion.
  1. Developing irrigation buffer
  • Buffer stocks can be created during years of excess production and used in times of shortfall.
  • Promote water-conserving irrigation techniques such as drip irrigation & develop an irrigation buffer to raise the production.
  1. Well-regulated markets
  • The government and regulators should increase the farmer’s awareness and information about future markets.
  • Price stabilization measures should be a mix of government intervention and developing market-based mechanisms to protect against price risks.
  • Developing the infrastructure and markets for agricultural products should be the priority of the government.
  • The government should reduce the transportation costs of farmers by linking them to markets with better roads.
  • To incentivize private sector participation, ad hoc restrictions on stocks should be avoided.
  • Forward contracts help reduce the uncertainty of future market prices.
  • Infrastructure should be improved by grading and storage facilities, and electronically linked warehouses.
  • The regulator will also need to ensure that mechanisms to check unfair price speculation are in place.

Conclusion

  • An efficient administrative and policy mechanism is one that has systems to deal with price shocks & exigency situations.
  • More steps are required to be taken by government, to deal with this mixed problem of pricing & production keeping the farmers in mind.
[Ref: Live Mint]

 

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