What happened in July?
July saw a rise in inflation at the wholesale level to 1.88% from 0.9% in June, with the spiralling tomato prices, along with other food items, contributing significantly to this rise. Tomatoes saw a sharp inflation of over 209.5% in July against contraction of 29.4% in June, according to data from the Centre for Monitoring Indian Economy. Brinjal registered a rise in inflation to 21.1% in July, from June’s contraction of 3.1%. The prices of tomato, onion and potato have increased in recent months owing to disparity between demand and supply on account of a drop in production because of unfavourable weather, a rise in transport costs, seasonality and supply chain constraints.
Why is supply low?
While the rise in the retail prices of tomato is being associated with low supply from key growing States, including Maharashtra, Madhya Pradesh, Uttar Pradesh, Himachal Pradesh and Karnataka following heavy rain in a few regions that damaged the crop and hindered transport as well, onion prices have seen a rise on account of low supply from the southern States.
The fluctuation in vegetable prices, which is commonly referred to as ‘seasonal,’ is associated with the economics of demand and supply. The Centre maintains that seasonal fluctuations in market arrivals have hit supplies. The other reasons for the fall in supply are adverse weather conditions and imperfections in marketing channels. However, the clash of interests between the consumer, the producer and the middlemen is a key factor that policy-makers must urgently address.
Where is the problem?
For years, the consumer, the producer (farmer) and the middleman have had a clash of interest when it comes to agricultural commodities. While the consumer wants to buy a commodity at the lowest price, the producer (farmer) desires to sell the produce at the maximum price. The middleman, on the other hand, wants to maximise profits. Striking a balance among these stakeholders could possibly address the issue of price fluctuation to some extent. Vegetable producers, especially small landholders, depend on intermediaries to sell their produce. As vegetables find their way to the market, the cost of packaging, grading, transporting and fees, besides the margins of the middlemen, are some of the elements that determine the final price the consumer has to bear.
Will better storage help?
Agricultural commodities with a short shelf-life are prone to price fluctuation and hence require better infrastructure for marketing.
Economists like Prof. M.S. Sidhu at Punjab Agricultural University believe that improved transport and upgraded storage infrastructure will keep a check on price volatility. India’s cold storage capacity at present is nearly 3.5 crore tonnes, which is short by 30-40 lakh tonnes, and it needs to be increased. Besides, cold storages need to be upgraded, equipping them to store fruit and vegetables at right temperatures so that they stay fresh.
Also, the high cost of transport needs to be addressed. In the case of perishable vegetables, the government could consider promoting low-cost refrigerated trucks and weigh the option of freight subsidy.
According to an estimate, there are 7,000-8,000 refrigerated trucks plying in India, mostly transporting pharmaceuticals and dairy products. Transport of perishable vegetables in refrigerated trucks could be one of the options that would help in better supply and availability of the produce.
What about the supply chain?
The mismanagement in the supply chain is another reason for the huge gap in prices that growers sell perishable agricultural commodities for and what the consumer pays. Creation of co-operative groups and societies are probably an alternative that could assist in minimising the marketing channel. They can work in tandem across the States and supply vegetables from ‘surplus’ regions to places where the produce is in demand.
Most farmers in India have small landholdings. Nearly 85% farmers are ‘small,’ who have less than 2 hectares. Cultivation has become unviable for these small farmers, but through cooperative groups and societies even a small quantity of crop produced by the farmer can be marketed. This will stabilise prices and benefit consumers.