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Why there’s something black about dal prices

Pulses continue to race on the rate list at your neighbourhood kirana store despite wholesale prices falling sharply in the past six months.

india Updated: Sep 05, 2016 12:29 IST
Zia Haq
Among food commodities, the retail margins for lentils have been particularly high.
Among food commodities, the retail margins for lentils have been particularly high.(AFP File Photo)

Pulses are still expensive but they shouldn’t be. Wholesale prices have fallen sharply in the past six months but retail prices remain stubbornly high.

Wholesalers who have faced the fury of the government’s anti-inflation measures now blame grocery stores and chains for not passing off the benefits of moderating prices to consumers.

This skewed pattern, of diverging consumer and wholesale prices, has become a trend in India’s overall inflation rates too. The two inflation indices which moved together until October 2014 have mostly gone in opposite directions since then.

Bulk traders recently told the consumer affairs ministry they weren’t to blame. “The government needs to exercise more control over the retail end of the market,” Bimal Kothari, the vice-chairman of the India Pulses and Grain Association, told HT.

Among food commodities, the retail margins for lentils have been particularly high: 35.6% for arhar on August 31 in Delhi, for instance.

Analysts say the differences should be no more than 15%. In 2012, a year when pulses were more abundant, the margin was 13%.

While mark-ups for items such as potato and onions are high – vegetables remain an inflation driver -- their overall prices are under control, making pulses stick out as a problem.

Simply put, arhar prices have dropped 30% in six months in Delhi, data show, while retail prices have fallen only 16%. This means retailers have passed only about half the benefit of falling rates.

“The fact that transmission lags are different in different cities itself points to local factors. Institutional factors and information asymmetries about prices and markets may have a role. This tells us that national policy alone doesn’t determine prices, subnational factors play a big role,” said NR Bhanumurthy, an economist at the National Institute of Public Finance and Policy.

His point was retail prices in Chandigarh were responding faster to a fall in wholesale rates than Chennai, where prices are sticky for reasons not entirely market driven but due to lack of transparency on price information.

Transmission lag refers to the time it takes price in the wholesale market to reflect in retail markets.

The wholesale-retail difference is the highest in packaged lentils rather than the loose variety, especially in large-format retailers such as Big Bazaar and D-Mart, according to data provided to HT by the India Pulses and Grain Association.

In stores such as the Future Group-owned Big Bazaar, for instance, the difference between packaged urad variety and the average wholesale price on August 31 was 57%.

Big Bazaar told HT they could not reveal their margins as a matter of policy but they had a wide range of pulses to cater to all income groups.

“Prices have been falling very frequently at the stores with the decrease in wholesale prices. These prices are very local in nature and they vary from city to city,” Swetank Jain, a spokesperson for Future Group, said.

Another large retailer, speaking on condition of anonymity, said their store was still trading old stocks procured at high price. “How can there be old stocks when large retailers are buying daily from us?” asked Rajinder Garg, the president of Delhi Dal Mills Association.