Image used for representative purpose only.
| Photo Credit: Levin Raju

The government on June 21 imposed stock limits on tur and chana dals till September this year to check hoardings and control prices.

The Centre has issued an order imposing stock limits, which will be applicable to wholesalers, retailers, big chain retailers, millers and importers, an official statement said.

The move is aimed to “prevent hoarding and unscrupulous speculation, and also to improve affordability to the consumers in respect of tur and chana”.

Also Read:Middlemen can actually help lower dal prices

The Removal of Licensing Requirements, Stock Limits and Movement Restrictions on Specified Foodstuffs (Amendment) Order, 2024 has been issued with immediate effect from June 21, 2024.

Under this order, stock limits have been prescribed for tur and chana, including kabuli chana, until September 30, 2024, for all states and union territories.

Stock limits applicable to each of the pulse individually will be 200 tonnes for wholesalers; 5 tonnes for retailers; 5 tonnes at each retail outlet and 200 tonnes at the depot for big chain retailers; last 3 months of production or 25 per cent of annual installed capacity, whichever is higher, for the millers.

Importers are not to hold imported stock beyond 45 days from the date of customs clearance.

The respective legal entities have been asked to declare the stock position on the portal of the Department of Consumer Affairs.

“In case the stocks held by them are higher than the prescribed limits then, they shall bring the same to the prescribed stock limits by 12th July 2024,” the statement said.

The government said that the imposition of stock limits on tur and chana is a part of a slew of measures taken by it to crack down on prices of essential commodities.

The Department of Consumer Affairs has been closely monitoring the stock position of pulses through the stock disclosure portal.

The department had, in the first week of April 2024, communicated with state governments to enforce mandatory stock disclosure by all stockholding entities, which was followed up with visits to major pulses-producing states and trading hubs across the country from the last week of April to May 10, 2024.

Separate meetings with traders, stockists, dealers, importers, millers and bigchain retailers were also held to encourage and sensitise them for truthful disclosure of stocks and maintaining the affordability of pulses for the consumers.

The government had reduced import duty of 66 per cent on desi chana with effect from May 4, 2024, to augment the domestic production.

The duty reduction has facilitated imports and elicited higher sowing of chana in major producing countries.

As per a report, chana production in Australia is estimated to increase from 5 lakh tonnes in 2023-24 to 11 lakh tonnes in 2024-25 which is expected to be available from October 2024 onward.

“Sowing of Kharif pulses like tur and urad is expected to increase significantly in this season due to high price realisation by farmers and above-normal monsoon rains predicted by IMD,” the statement said.

Further, imports of the current year’s crop of tur from East African countries are expected to arrive from August 2024 onward.

“These factors are expected to help in bringing down the prices of Kharif pulses like tur and urad in the coming month. Arrival new crop of chana in Australia and its availability for import from October 2024 will help in maintaining the availability of chana to the consumers at affordable prices,” the government said.

Photo used for representation purpose only.
| Photo Credit: Sushil Kumar Verma

The government has blamed greedy middlemen for hoarding stocks of pulses, causing a reduction in supply in the market and pushing up pulse prices. But, as outrageous and counterintuitive as it may sound, the truth of the matter is that food prices would be much higher in a world without middlemen.

The prices of pulses have risen significantly over the last year and the government has resorted to various measures to rein in prices. Among other things, it has ordered officials to conduct surprise checks on warehouses and push middlemen to disclose stock holdings to ensure pulses are not hoarded.

It may be true that middlemen are hoarding stocks and pulse prices can drop if these supplies are quickly released into the market. After all, a rise in the amount of stocks held by traders reduces supply in the market and pushes up prices. However, it should be understood that hoarders or speculators hoard supply for a good reason. If traders expected prices of pulses to be lower in the future, they would not hoard anything and try to sell all their stocks in the present. So, the fact that traders are hoarding pulse stocks right now simply means that they expect pulse prices to rise in the coming months.

If hoarders are right about their forecast that prices would be higher in the future, they would make profits. And if they are wrong about their forecast, they would make losses. So, unlike popular belief, hoarders are not guaranteed to make profits just by hoarding supplies. In fact, they could very well make losses if the shifting of stocks from the present to the future through hoarding causes oversupply in the future. So, in effect, consumers are the ones who determine the price of any good at any point in time, and middlemen are simply just trying to time the release their stocks into the market in such a way that consumers get the supplies only during times when they value it the most. Thus, middlemen carry out a very useful social function of ensuring that resources are allocated in the best way possible.

When governments force middlemen to sell their stocks, this would suppress prices in the short-run by increasing supply in the present but likely cause higher prices in the future by reducing future supply. This may be good politics from the point of view of the government which is facing a crucial election, but it is harmful from the point of view of consumers who will have to suffer higher prices in the future.

Secondly, such speculation by middlemen can actually help society by boosting farm production.

Indian farmers, it should be noted, have often fallen prey to the sharply fluctuating prices of many agricultural goods. Usually in a year when agricultural prices are high, they respond by increasing their production in the following season hoping to profit from higher prices. But the increased supply in turn causes a glut in the market and leads to prices falling precipitously, which in turn causes heavy losses to farmers. It should be noted that farmers themselves can decide to hoard supplies during a year of bumper crop production in the expectation that they could sell their excess produce when prices will be higher in the future. But not all farmers may be willing to undertake the risk of forecasting future prices and may thus want to offload their produce into the hands of middlemen willing to take the risk.

In such a scenario, middlemen may help prevent steep declines in the current or spot prices of agricultural goods. This is because, as long as there is free competition, middlemen would be willing to pay higher prices for bumper crops produced by farmers since they expect to sell these crops they buy (or hoard) currently at a higher price later. And by offering better prices and more stability to farmers, middlemen can encourage farmers to keep producing the crops in the future rather than stopping cultivation due to wild price fluctuations. This would help increase the overall production of pulses and lead to lower prices than would be the case otherwise. When, on the other hand, the government goes after speculators for hoarding supplies and forces them to dishoard, this would cause middlemen to pay lower prices to farmers since they can’t store supplies and sell them in the future at higher prices.

So, by going after hoarders and forcing them to sell their stocks, the government is effectively outlawing speculation that would help farmers as well as consumers, simply to achieve short-term political gains.