Arhar Dal Consumption Decline – Implications for Investors

The Impact of Declining Arhar Dal Consumption

Analysis for Layman

Arhar dal, also known as tur or pigeon pea, plays a crucial role in Indian cuisine. However, in 2023, its consumption has dropped by 15-20% compared to the previous year due to a significant price increase, soaring from ₹130-140 per kg to ₹200 per kg in retail markets. This price surge has prompted consumers, particularly in south and east India, to switch to cheaper imported green lentils, which offer a similar taste. In north and west India, hotels and institutional buyers have also shifted to other lentil varieties instead of arhar dal.

This decline in demand is termed “demand destruction,” which happens when prices reach a level that consumers can no longer afford or are unwilling to pay. Consequently, consumers either reduce the quantity they purchase or seek more affordable alternatives. This fall in arhar dal consumption has had a negative impact on domestic farmers and traders who rely on this crop. On the flip side, it has benefited importers who bring in lower-cost pulses from other countries.

The government’s promotion of chana dal, a cheaper alternative protein source, has led to increased consumption. However, in the long term, rising incomes and population growth are expected to support higher demand for arhar dal once prices stabilize.

Impact on Retail Investors

For retail investors, the decline in arhar dal demand presents both potential opportunities and risks throughout the agricultural supply chain. Investors should closely monitor publicly traded companies involved in arhar dal production, processing, and distribution, such as KS Oils, LT Foods, and Adani Wilmar, among others. In the short term, share prices of these companies may experience downward pressure if volumes and margins are significantly impacted.

However, the shift towards substitute pulses suggests exploring companies focused on lentils and chana dal, as they are likely to benefit in the near term. These companies include leading branded pulse producers like Tata Consumer Products and Divine Organics, which offer a diverse range of products. Given high inflation, investors should also consider evaluating edible oil companies like Ruchi Soya and consumer staples players with pricing power, such as Dabur India.

Additionally, this situation highlights India’s dependence on imports to meet domestic protein demand. This underscores the long-term investment potential in agricultural companies that enhance domestic pulse production, cold storage and warehousing infrastructure for better crop preservation, and food distribution networks that connect farmers with consumers.

Beyond Indian equity markets, retail investors can relate this pulse price volatility to global fertilizer, seed, and agrichemical companies, which must balance healthy margins with restraint to avoid further food inflation consequences in emerging markets.

Impact on Different Industries

The decline in arhar dal demand will have mixed effects on India’s agricultural and food industries:

• Negative for dal millers, wholesalers, and retailers focused on arhar: With consumers shifting their purchases away from relatively expensive arhar dal, revenues and margins are likely to come under pressure for players along the tur/pigeon pea value chain compared to other pulses like chana dal.
• Positive for importers of alternative pulses: As consumers substitute lentils and green gram for arhar, Indian import volumes and sales value for these crops could rise in 2023, benefiting international traders and domestic importers like LT Foods.
• Negative for arhar farmers, positive for alternative pulse growers: With declining demand and high input costs, grower prices and acreage devoted to arhar dal production may decrease in upcoming harvests. This should incentivize farmers to allocate more land to pulses with resilient consumer demand, such as chana.
• Mixed impact for sellers of pulse substitutes like soybeans and peas: While acreage for these substitutes may increase, processors must balance supporting food inflation concerns with protecting profitability.
• Marginal gain for rice and wheat producers: The partial substitution of pulses in Indian diets supports incremental demand for cereal grains. However, price-regulated wheat and rice also face elevated input costs.

Long-Term Benefits and Negatives

In the long run, India’s economic growth and population expansion are expected to outweigh the current disruption in arhar dal demand, leading to increased consumption and production. However, structural changes resulting from this price shock may persist.

Potential Long-Term Benefits:

• Boosts government incentives for pulse self-sufficiency: To reduce reliance on volatile import markets, policies supporting domestic pulse farming and warehousing infrastructure may expand.
• Encourages crop diversification by farmers: Persistent high retail arhar prices and input costs may lead farmers to diversify their acreage into other pulses, oilseeds, and cereals.
• Opens the door for protein substitutes and supplements: Large-scale substitutions away from arhar dal may increase familiarity with alternate plant and animal proteins, as well as supplements.
• Sparks private sector agricultural investments: Upgrades in processing technology, cold storage capacity, and supply chain modernization could unlock long-term productivity in Indian pulses.

Potential Long-Term Negatives:

• Discourages arhar production and processing investments: Consumers becoming accustomed to other pulses over arhar may disincentivize investments in arhar-specific production and processing.
• Raises retail food inflation expectations: Prolonged high prices may shape consumer expectations of higher baseline food inflation, challenging attempts to counteract this trend.
• Deepens imports dependency for pulses overall: Growing demand coupled with stagnant domestic crop productivity may structurally increase India’s reliance on imported pulses.
• Increases pressure on alternate pulse prices in the long term: Sustained substitution effects may eventually exert upward pressure on retail prices for lentils, green gram, chickpeas, and others.

Short-Term Benefits and Negatives

In the short term, the main developments are the consumption decline itself, price pressures, and the impact on food inflation:

Short-Term Benefits

• Lower arhar dal prices possible: If demand destruction continues throughout 2023, retail arhar prices could experience a market-forced correction from elevated levels as production stabilizes.
• Consumer savings from substitution to alternatives: Households switching to cheaper pulses and supplementary cereals may experience budget relief in the near term.
• Government buffers inflation perception: Promoting domestic chana dal may curb some food inflation optics as consumers shift their protein sources.

Short-Term Negatives

• Revenue uncertainty for arhar-focused companies: Despite potential price corrections, lower consumption volumes create top-line volatility for arhar-focused players across agriculture, processing, and distribution.
• Farm-level arhar prices decline: With muted demand and high input costs squeezing margins, farmgate crop rates for growers may take a hit.
• Pressure builds on substitute pulse prices: As consumers flock to alternatives like chana and imported lentils, short-term supplies may tighten, placing upward pressure on those retail prices as well with a lag effect.
• Imports dependency deepens: India must ramp up pulse imports to maintain protein levels as domestic arhar utilization drops, raising trade deficits.
• Broader food inflation concerns: Retail food price inflation may remain stubbornly high as consumers pay more for alternatives while arhar moderates and the cascading substitution effects play out.

Companies That Could Gain

LT Foods: This basmati rice and specialty pulses exporter has distribution reach across India, North America, and Europe. It offers a wide range of lentils, chickpeas, and organic offerings that could see increased demand as consumers switch from arhar. Its diversified product portfolio also mitigates category-specific demand swings.

AGT Foods: Pulse and staple foods importer AGT stands to gain increased sales volumes by importing more cost-competitive lentils, green gram, and chickpeas to India as households switch away from expensive domestic arhar.

Dodla Dairy: India’s third-largest dairy company could see mild top-line benefits as some substitution occurs from pulses to alternate animal proteins like milk and milk products among consumers sensitive to vegetarian preferences.

Avanti Feeds: If the pulse consumption changes foster increased demand for non-vegetarian protein sources over the longer term, shrimp exporter Avanti Feeds would likely see robust volume growth.

Dabur India: The leading fast-moving consumer goods firm offers a wide range of branded food products, including fruit juices, culinary pastes, and health supplements, that could experience demand upside from changing consumer preferences.

Companies That Could Lose

KS Oils: Specialty edible oils processor KS Oils also operates integrated arhar dal mills in central India. Demand decline directly pressures revenues and margins in its core pulses category.

Adani Wilmar: Food conglomerate Adani Wilmar sells fortified and organic pulses across India, including arhar dal varieties. Reduced turnover and higher relative costs for its pulse portfolio could impact overall profitability.

Vimal Oil & Foods: Wholesale pulses supplier Vimal Oil has significant exposure to arhar dal distribution, which faces top-line uncertainty. It must also contend with potentially elevated input costs for alternative pulse offerings.

LT Group: A diversified group, LT has pulse milling operations focused mainly on arhar production and branding. LT could consider expanding capacity for alternate pulses but will likely experience significant margin compression if arhar demand malaise persists.

Patanjali Foods: Baba Ramdev-led Patanjali offers a line of packaged arhar dal which will face an immediate revenue impact. However, competitive dynamics could allow it to gain share within the category if smaller brands exit. Diversification into alternate Patanjali pulses can also provide offset.

Source: Bhosale, Jayashree. “Consumption of Arhar Dal Down 15-20%.” The Economic Times, 16 Dec. 2023,