Do threats of precipitate action work in food trade? Can warning of penal action against traders help overcome genuine shortages or help rein-in escalating prices? Why is New Delhi forced to issue threats to traders? What is its own role in misreading the market situation? These questions arises because the country’s pulses trade has been at the receiving end of official intimidation; warned of penal action if they tried to indulge in speculation. Even overseas suppliers are not spared from this threat.

The context is this: pulses prices, especially tur/arhar or pigeon pea, have escalated to levels not comfortable for policymakers. The government believes the price rise is unwarranted and suspects that traders rig prices. . It is no one’s case that each and every trader is honest and works only for normal profit. There will be elements that seek to exploit the situation. The question is whether we have a fool-proof mechanism to identify and punish rogue traders. The government has already taken a series of steps to augment supplies and control the price of various pulses. Import of tur, urad (black matpe) and masur (lentil) has been allowed free till March 2025. Import of yellow pea — said to be a substitute to chana (chickpea) — is allowed till April 2024.

In addition to liberalised import, stringent stock limits are already in place. At specified intervals, processors, traders and value chain participants have to file statements of inventory changes. Yet prices continue to remain uncomfortably firm. This is because of a combination of unrealistic estimation of domestic production and the rather limited availability of pulses such as pigeon pea in overseas markets.

Export prices

In at least one supplier country in Africa, namely, Mozambique, a legal tussle over export shipments has added to India’s woes. No wonder, suppliers in the major origin country, Myanmar, are taking advantage of the Indian situation to raise their export prices.

Can the Indian government prevent overseas entities from opportunistic pricing? India can at best canalise pigeon pea import (that is, route import through government agencies); but the market knows well that India cannot escape its import compulsion. Imposition of MIP (maximum import price) will lead to invoice manipulation, going by experience in other commodities. The real issue is the lack of commercial intelligence on the part of the policymakers. Collection and collation of crop production data is critical. Often production estimates are overstated; though it is unclear if it is by accident or by design. There may possibly be enthusiasm to show improved performance.

Intervention based on inaccurate data, especially on production, will not yield the desired outcomes; nor will it facilitate timely intervention. Take pigeon pea, a kharif season crop. Going by government data, pigeon pea production declined from 42-43 lakh tonnes in kharif 2020 and 2021 to a recent low of 33-34 lakh tonnes in kharif 2022 and 2023. For two years in a row, the crop size is down by a fifth. Of course, we are trying to augment supplies by liberalising import; but world supplies are limited and overseas suppliers know well about India’s dependence on import. Meanwhile, demand continues to expand.

Many policymakers have little idea how commodity markets work. They believe, if production declines by, say, 5 per cent then prices will rise proportionately, by 5 per cent. Nothing can be farther from market reality. Proportionality does not work in commodity markets. Markets work on perceptions, sentiment and outlook.

It is important for policymakers to be able to read advance signals that the market usually sends out. For reliable market information, analysis and outlook, the government must set up a ‘commercial intelligence and research’ desk manned by domain specialists with credibility and independence. This research desk can provide advance inputs and make recommendation for the consideration of the policymakers. This initiative or mechanism is overdue.

The writer is agribusiness and commodity markets specialist. Views are personal

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