Vegetable Prices: Quite A Pickle

Shortly before vegetable prices began to make headlines, the Department of Agriculture, Cooperation and Farmers’ Welfare released its estimates for production of fruits and vegetables during the 2018-19 crop year. The August estimates showed that horticultural produce had risen by 0.69 per cent to 313.85 million tonnes over the 2017-18 crop year, of which the output of onions had gone up by 0.81 per cent. Potato production had increased by 3.4 per cent to 53.03 million tonnes and the tomato harvest had been a modest 1.8 per cent higher. 

As a matter of fact, the 2018 market arrivals of potatoes, onions and tomatoes had been considerably higher than that of the five-year average of the crop years between 2013-17 (please see bar graphs). By September this year, though, it was abundantly clear that prices of horticultural commodities like onions, tomatoes and potatoes were on the rise, but then the key production spell for all three was the Rabi (winter) crop, and not the Kharif (summer) harvest. 

In November the Union government decided to import 21,000 tonne of onions from Turkey and Egypt to cope with the searing market demand, amidst apprehensions that by the time the imported onions hit Indian ports, onion prices would begin to dip in the domestic markets. Anil Ghanwat, President, Shetkari Sanghatana (Joshi) feels the market intervention by the government in horticultural commodities was unnecessary. He is also critical of the government’s decision to increase export duties while onion prices were on the run, pointing out that such measures were a deterrence to international trade. The idea, he concedes, may have been to improve the domestic availability of onions, but the decision had an adverse impact on exports. 

“Export Subsidy was terminated in June,” points out Pushpendra Singh, President of the Kisan Shakti Sangh. “Minimum export prices were fixed by the government as a second step,” he says, adding, “As per the latest stock limits, retailers can stock up to two tonne and wholesalers can stock up to 25 tonne.” 

The immediate solution to wild fluctuations in vegetable prices, no doubt, is to procure the crop during cultivation, so that the 2018 incidents of farmers flinging their harvest on highways to avoid distress sales do not recur. On the other hand, keeping farmers happy by allowing prices of vegetables to rise, would pinch consumers. Incidentally, tomatoes, onions and potatoes (which have now acquired the indulgent acronym TOP around Krishi Bhavan) are the focus of Operation Green. The Rs 500 crore sanctioned to improve the production of these three kitchen staples in India, however, is insufficient and a mere baby step in improving crop production.   

Vegetable crops play a unique role in India’s economy, enhancing income of rural households. Cultivation of fruits and vegetables is labour intensive and so, generate a lot of employment for the rural population. India has diverse kinds of soil and climate, across several agro-ecological regions that make production of a wide variety of horticultural crops possible. Fruits, vegetables, roots and tuber crops, flowers, ornamental plants, medicinal and aromatic plants, spices, condiments, plantation crops and mushrooms, form a significant part of the total agricultural produce of the country. 

Horticulture had not been a priority till the 1980s. Till then, the main focus of agriculture was growing cereals. During 1980-92 institutional support for horticulture was consolidated and a planned process for development of horticulture began. After 1993 plan allocation was enhanced and knowledge-based technology was used. The National Horticulture Mission, though, only took off in 2005. 

Production of horticultural commodities like onions, potatoes and tomatoes is high risk, because they are only abundantly available in short spells, which coupled with the problems of storage and transportation and the consequent post-harvest losses, pose a challenge to marketing the produce. Consumers therefore, are subject to wide price fluctuations in the market. 

Pushpendra Singh blames inadequate processing infrastructure for the periodic see-saw in tomato prices. The concentration of cold storage infrastructure among potato sellers, he feels, was the real culprit for the periodic onion price spikes. Agro-economist and former Union minister Yoginder K Alagh is of the opinion that a mere declaration of Minimum Support Prices for various commodities was not going to help, as long as procurement of farm produce was not adequate, which incidentally, also holds true for some grains. Erratic agricultural prices, opines Alagh, was the upshot of inadequate policy responses. 

Anil Ghanwat blames absence of adequate storage and cold storage facilities and the lack of a robust agro-processing industry, for the present situation. The government, he complains, believes in keeping food prices low for the Indian population at the expense of the farmers. The Minimum Support Price (MSP) declared for farmers, according to him, was much lower than the actual cost of production.

Source: Monthly Report on Onion Arrival, Ministry of Agriculture 

Source: Monthly Report on Tomato Arrival, Ministry of Agriculture

But did the skyrocketing prices of vegetables, particularly onions and tomatoes, “double the farmers’ income” ‒ if only for a short season?  Apparently not, and thereby hangs a mesmeric tale of a monkey in the middle, who apparently eats away most of the profits of a vegetable price spike, when prices of onions, tomatoes and potatoes drive the consumer to tears and leaves the farmer holding a lemon. 

Source: Monthly Report on Potato Arrival, Ministry of Agriculture 

The vegetable market

The agricultural produce market in India is dominated by rural primary markets that meet local demand. There are also secondary markets that serve more distant consumers and there are wholesalers. The objective of the markets established by the government is to regulate trade practices, increase marketing efficiency by reducing marketing charges, eliminate intermediaries and protect the interests of the producer-seller. Even though the regulated markets helped reduce multiple charges for the producer‐seller, the system failed to check trade malpractices, making such markets highly restrictive, inefficient and dominated by traders.

After Independence, three inter-dependent policies and programmes were pursued to develop agricultural marketing in India, namely, creation of infrastructure (both physical and institutional), implementation of the price stabilisation policy and the approach to foreign trade in agricultural products.  Intervention through creation of infrastructure facilitates various marketing functions. The Warehousing Corporations Act, 1962 and the National Grid of Rural Godowns Scheme of 1979 enabled the Central and State Warehousing Corporations to construct warehouses for storing agricultural produce. The Cold Storage Order, 1980 helped expand cold storage facility for preserving perishable agricultural commodities, such as fruits and vegetables. 

Efforts to reform the system with programmes like E-NAM (National Agriculture Market) have only proved partially effective. The markets established by the government strive to regulate trade practices, increase marketing efficiency by reducing marketing charges, eliminate intermediaries and protect the interests of the producer- seller. Even though regulated markets have helped reduce multiple charges for the producer‐seller, they have failed to check trade malpractices, rendering them highly restrictive, inefficient and dominated by traders.  

The Middlemen 

Most agricultural commodity markets are swayed by forces of demand and supply. Buying and selling agricultural produce takes place in the market yards, where many market functionaries are involved. Almost two decades ago, a government report showed that the farmer received just a rupee of every Rs 3.50 paid by the consumer. The retailer earned Rs 0.75 of it, the wholesaler got Rs 0.50 and the remaining Rs 1.25 went to commission agents and traders. Since these markets have remained traditional, even Market Intervention Schemes (MIS) or the Agriculture Produce Marketing Committee’s (APMCs) were unable to rectify these deep-rooted flaws.  

Earlier studies had indicated that the producers’ share in the ultimate retail price varies from 56 per cent to 83 per cent in the case of foodgrain, 79 per cent to 95 per cent for pulses, 65 per cent to 96 per cent for oilseeds and 33 per cent to 75 per cent in case of fruits and vegetables. A common marketing channel still used by cultivators at large goes thus: 

Producer—>Pre-harvest Contractor/Consolidator——>Commission Agent—->Wholesaler—>Retailer—> Consumer. 

This entire chain has two main bottlenecks ‒ the commission agent and the wholesalers. Pushpendra Singh refers to a recent NABARD study that suggests that producers of crops like onions, barely get 25 per cent to 30 per cent of the price consumers pay for the vegetable. The biggest beneficiary of a spike in prices are undoubtly, the middlemen. 

Unshackling agriculture is the only solution believes Ghanwat. “The government should act like a safety fuse mechanism. Only in case of chronic shortage or natural calamity should the government intervene,” he says, adding, “Let the traders do the business.” Others emphasise the need for adequate storage facilities for horticultural produce. Pushpendra Singh points out that there are over 8,000 cold storages across India, 90 per cent of which are used to store potatoes, explaining why the tuber was available round the year.  

Yogendra Alagh blames the policy mechanism for the horticulture market mess. “More appropriate markets are declared, but not operationalised,” he says, “also the price data is poor, so forwards don’t help in price discovery. These price policies should get out of just slogans and get to reach genuine stabilisation. They should cut the marketing costs per unit by reform and infrastructure, because nature’s fury is inevitable.”   

Singh emphasises the need to curb middlemen. He also underscores the need for AMUL-like marketing cooperatives for essential vegetables. He says that the 18.5 crore tonne of vegetables produced in the crop year 2018-19 made the vision of doubling farmers’ incomes seem realisable, pointing out in the same breath that the vision could only turn into a reality with legitimate price realisation for the farmer. Till 70 per cent of the profit from the sale of vegetables reach farmers, the problem of plenty will persist. Ghanwat pips for genetically modified produce, that have a longer shell life. “Scientific intervention is required,” says he.   

Keeping vegetable prices affordable and the vegetable farmer prosperous is obviously a tightrope walk. The apparent dichotomy could be a realisable dream with storage infrastructure, more market reforms and a flourishing processing industry that could buy the produce directly from the farmers. As the Greek philosopher Plato had preached, “Without effort, you cannot be prosperous. Though the land be good, you cannot have an abundant crop without cultivation.”