ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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When Vegetable Prices Blow Up

The government’s strategies to tame vegetable prices are misplaced in both scope and coverage.


Volatility of food prices is so commonplace in India that even government responses to it have assumed a rather languid demeanour, not going beyond the verbose promises of improving the farmers’ lot. In the past few weeks, however, skyrocketing vegetable prices across the country, especially that of onion, have created much flurry in the policy circuit. But, this hyperactivity has not transcended the conventional strategies of imposing a minimum export price (MEP) on the exporters and/or a stocking limit on the domestic traders, something that we have already seen this government doing in 2017 to douse the raging retail prices of onion and tomato, then at₹ 80 a kilogram (kg) and ₹ 110 a kg, respectively. Interestingly, it is not the seasonality of vegetable prices per se, but their exacerbation in almost every alternate year that makes the government in power uncomfortable. While the reasons for such escalations are usually interpreted, particularly by the policymakers, as something beyond their control, it is hard to ignore that the conveniences of projecting such official “helplessness” are many.

First, it helps shroud years of inaction behind the “urgent” actions. This, in turn, makes the years of accelerated price spikes appear as some isolated phenomenon, rather than a structural malaise. Second, it justifies the contradiction in the government’s promises and actions. A government that makes grandiose proposals like “one nation, one market,” can impede farmers’ access to remunerative markets (export markets in the case of onions) in practice, just for the sake of gaining quick control of prices. Third, “helplessness” resonates well with the general feeling of the middle class—a pivotal vote bank of the ruling party—operating under binding budget constraints. But, most disconcertingly, this paradigm of emotive politics is laden with the risk of relegating the significant to the periphery. For instance, fundamental issues, such as why the government’s price control policies fail to envision farmers as “net buyers” and/or consumers of food, or how “consumer friendly” the projected “consumer bias” in such policies in reality is, etc, are muted in the public discourse. Whereas, ground-level evidences put a big question mark on the veracity of such projection.

With almost 60%–70% of the final retail price of vegetables being formed in the post-farm gate segment, largely by the costs and margins of the middlemen, farmers are likely to have little control over prices. On the other hand, with retailers apportioning the highest share of margins in general, retail prices are less likely to move in tandem with wholesale prices. For example, as per the data published by the National Horticulture Board, when the average wholesale price of onion in Delhi declined from₹ 32 a kg in January 2018, to₹ 20,₹ 11, and eventually to₹ 9 a kg in February, March, and April 2018, respectively, the average retail price came down from₹ 49 to only₹ 37 to₹ 38 per kg. Similarly, in the past few weeks, the average wholesale price of onion in Delhi has hovered between₹ 30 and₹ 32 a kg, while retail prices have steadily shot up from₹ 50 to₹ 59 a kg.

None of the interventions adopted by the government in the present scenario, however, address the structural anomalies of the farm-produce markets that result in asymmetric price transmission between the producer and the consumer. Such policies essentially have no elements of “consumer-friendliness” in them, beyond empty rhetoric. The 2017 report of the International Bank for Reconstruction and Development, in fact, points out that the notion of consumer bias has come handy in restricting onion trade whenever the government foresaw rising domestic prices. The lack of stable trade policies can be a disincentive for the agricultural sector as a whole, let alone the consumers or producers in isolation. Banning of exports by instituting an MEP (currently at $850 a tonne) that is way above the export parity price (at $300 per tonne), will deprive farmers of the benefits of exports, while intermittent trading will affect India’s credibility as an exporter in the international market, and thereby the unit value of her exports.

Ironically, here is a government that speaks of doubling farmers’ income by 2022 and, in tandem, of boosting farm exports to at least $60 billion by 2022, of diversifying agriculture towards “high-potential” horticulture products, and/or producing processed agricultural products, among other things. But, in practice, it supports those conditions that delimit farmers within the ambit of the traditional “mandi” system where auctioning procedures are controlled by traders and commissioning agents. Even after two decades of the emergence of new stakeholders in Indian food markets, neither the Agricultural Produce Market Committee wholesale markets have changed adequately to meet the quality and consistency demands from these new players, nor have there been concerted policy efforts towards such transition. Moreover, the government’s “selective” bias for the “distressed consumer” in the non-farm gentry can take away from the reality of asymmetric price transmission and related structural inadequacies in the agricultural markets. One should not lose sight of the fact that high consumer prices do not translate into proportionally high farm prices in the Indian context. Given this, farmers, who are net buyers of food, are equally vulnerable to price volatility as the other consumers. Who is to be held accountable for these farmers?

Updated On : 1st Nov, 2019


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