RISE
IN TOMATO PRICES – ECONOMY
News: Explained | Why are tomato prices
still high?
What's
in the news?
● Recently,
the Reserve Bank of India has highlighted that the volatility of tomato prices
has historically contributed to overall inflation levels in the country.
Causes
of higher vegetable prices in India:
1. Narrow
concentration of production: All the vegetables are concentrated in a
narrow place; If any extreme weather events happen in that region, that will
reduce the supply of the crop.
Eg. Tomato production in
the country is concentrated regionally in the States of Andhra Pradesh, Madhya
Pradesh, Karnataka, Odisha, and Gujarat, which account for close to 50% of
total production; Extreme weather events in these regions have contributed to
the supply demand mismatch.
2. Heat waves: The
heatwaves and high temperatures in April and May times along with delayed
monsoon showers are affecting the Rabi crops.
Eg. Heat waves in
southern India and Maharashtra led to pest attacks in tomato crops and caused
the supply crunch.
3. Incessant
rains: Incessant rains in selected regions further affected the new crop
and also made transportation to non-growing regions difficult.
4. Delayed
monsoon: Due to monsoon delay and its resultant shortage in water supply to
the crops lead to supply crunch in the country; In India 75% of the water needs
of the kharif crops are met by the monsoon showers.
5. Lack of
supply chain: Supply chain issues in transporting the vegetable from areas
where it is grown to regions where it is not is the major cause of the higher
price of rice in the country.
6. Government’s
neglect: Government didn’t take any measures to combat the supply demand
mismatch even though it happens every year.
● Eg.
Government often sees this issue as a temporary one and doesn't take any
measures to solve this issue on a long-term basis.
7. Poor price
realization: Due to poor price realization farmers often go to cultivate
other commercial crops like Cotton, Sugar cane etc.
● Eg.
The year 2021 also saw prices drop to as low as ₹2-₹3 per kg for farmers. This
led to a lot of them cultivating tomatoes in lesser land areas and shifting to
other crops, which resulted in a glut.
8. Poor food
processing capacity: Due to poor food processing capacity many agricultural
commodities go wasted.
9. Middlemen
issue: In 2022 study estimated that farmers only get 32% of the shares what
consumers pay; Middlemen also used to hoard large amounts of commodities and
artificially increase the price and then sell it in the market.
10. Lower
productivity: In India agricultural productivity is very low compared to
other countries; Due to this lower productivity, supply demand mismatch is
often a common problem.
● Eg. Tomato yields in India at 25
tonnes per hectare (t/ha) are very low when compared with the global average of
37 t/ha.
11. Minimum
Support Price: Due to narrower coverage of MSP, other crops are neglected
by the farmers as MSP provides security to the farmers.
Consequences
of higher vegetable prices:
1. Low economic
development: The rising vegetable prices and inflationary pressure have
broader implications for India's economy. Household spending is expected to
decrease, and higher vegetable costs may further reduce consumer expenditure.
This, in turn, can slow economic development.
2. Monetary
policy issues: Due to high price rises, the RBI is forced to take tighter
monetary policy instead of loose monetary policy to control the inflation.
3. Ripple
effect: High prices of agricultural commodities have a ripple effect on
other products.
● Eg. Reduced supply of Tea leads to
increased demand for coffee and thus increased price rise.
Steps
taken by the government:
1.
Operation Green TOP: The idea of the scheme was to build value
chains of TOP on lines of ‘Operation
Flood’ (AMUL model) for milk in such a way that will ensure higher share of
the consumer’s rupee to farmers and also stabilize their prices.
2. The consumer affairs ministry has directed
cooperatives such as Naved and NCCF to
procure tomatoes from Andhra Pradesh, Karnataka, Maharashtra for
distribution in major consumption centers.
3. Sell through
PDS shops: Many state governments
are selling the vegetables through PDS shops at a subsidized rate.
● Eg.
In Tamil Nadu, all the ration holders can buy tomatoes at a subsidized rate
till the prices of the vegetables cool down.
4. Dedicated
task force: Some state governments have formed a dedicated task force to
check the hoardings and cancel the licenses of the shops which sell the
vegetable at very high price.
WAY
FORWARD:
1. Importance
to TOP crops: Government should increase the area of cultivation of Tomato,
Onion, Potato.
● Eg.
A NABARD study notes that tomato, onion, potato are the most volatile out of
all the Agri-commodities.
2. Organized
value chain creation: An organized value chain involves a market-focussed
collaboration of a set of entities working in tandem to produce, process and
market products and services in an effective and efficient manner.
3. Increase
food processing capacity: Government should strengthen the country’s food
processing capacity to decrease agricultural commodities waste.
● Eg.
An ICRIER study suggests increasing the processing capacity by 10% will
decrease 30% supply demand mismatch.
4. Eliminate
middleman issue: Government should take steps to eliminate the middlemen in
the supply chain and measures to combat the issue of hoarding also can be
taken.
5. Farmer
producer Organizations: Government should empower the Farmer producer
organizations to sell the products directly to the Government designated places
can be a better solution to ensure the sustainable supply.
6. Agriculture
Produce Marketing Committee: Amending the rules of Agricultural Produce
Market Committees to reduce commission and other fees can be a better way to
improve the supply chain.
7. Adopting new
models of production: ICRIER suggests encouraging cultivation in structures
called poly houses and greenhouses (as done in many European countries), which
can control pest attacks.
8. Increase
cold storage capacity: Government should increase India’s ability to store
its produce. The ability to store excess produce will not only help consumers
(during phases when supply slumps) but also help farmers earn more.