India’s urad dal production faces a 40% decline in sowing area following a delayed monsoon, forcing a shift in crop patterns. With domestic supply falling to 2.2 million tonnes in FY26, import reliance is growing, with estimates reaching 1.2 million tonnes by March 2027. This supply-demand mismatch highlights potential inflationary pressure for the agro-processing sector and essential food prices.
What Happened
India is witnessing a significant shift in its agricultural output, with the area sown for urad dal (black gram) dropping by approximately 40% this season. This decline is largely attributed to a delayed monsoon, which has prompted farmers in major producing states—specifically Madhya Pradesh, Maharashtra, and Rajasthan—to pivot toward more stable or profitable crops such as soybean, maize, and coarse grains. The decline in output is a continuation of a trend, with production volumes falling from 2.8 million tonnes in fiscal year 2022 to 2.2 million tonnes by fiscal year 2026.
The Shift In Crop Economics
Farmers are increasingly moving away from urad dal due to heightened weather sensitivity. The crop is particularly vulnerable to both drought conditions during its growth phase and excessive rainfall during harvest, creating significant financial uncertainty. Despite the Union government increasing the Minimum Support Price (MSP) from ₹6,600 per quintal in 2022 to ₹8,200 per quintal, market dynamics have shifted rapidly. In key trading hubs like Indore, market prices have climbed above ₹9,200 per quintal, marking a sharp increase from the ₹5,500 to ₹7,200 range observed just three years ago. This price spread suggests that market demand is consistently outstripping domestic supply, even with government-backed procurement schemes.
Import Reliance And Inflationary Pressure
To balance the domestic deficit, India has significantly ramped up imports. Official data shows imports reached 1.05 million tonnes in fiscal year 2026, up from 611,000 tonnes in fiscal year 2023. Industry projections suggest this figure could climb to 1.2 million tonnes by March 2027. This rising reliance on foreign supply makes the domestic price of pulses more sensitive to global trade dynamics and currency fluctuations.
For investors and companies in the agro-processing and fast-moving consumer goods (FMCG) sectors, this trend is critical. Higher raw material costs for pulses can compress operating margins if companies are unable to fully pass these costs on to consumers through price hikes. The structural supply-demand gap also invites potential government intervention, such as stock holding limits or changes in import duties, which are commonly used tools to control food inflation.
Risks And Sector Outlook
The primary risk for the sector is continued food price inflation, which can dampen consumer demand for branded food products. Additionally, while the Price Support Scheme for crops like mung, urad, and peanuts provides a safety net for farmers, it does not address the underlying issue of lower acreage and weather-dependent output. As the sector relies more on imports, it remains exposed to potential volatility in international supply chains.
What Investors Should Track
Investors may monitor upcoming data on pulse imports and any government policy updates regarding trade duties or export-import restrictions. Additionally, management commentary from companies with significant exposure to the pulses processing and branded food segment will provide insight into how firms are managing input cost volatility and whether they are successfully passing these costs to the retail market.