A complex set of factors, like government inaction on developing a national market for vegetables, supply chain bottlenecks and the current spell of high temperatures, have fuelled a surge in the retail prices of vegetables in major cities?the largest consumption centres.
FE examined data of the past several years that yielded a surprising mix of conclusions.
As the table shows, in the last one year (until July 2009), arrivals of major vegetables at the Delhi wholesale market (mandis) have gone down, by as much as 36% for tomatoes, 34% for potatoes and 4% for onions. A drop of this magnitude has not happened in any year since 2003-04, which was a year of drought for India.
Government data shows that in 2003-04, in Mumbai, potato arrivals fell only by 14 % and for onions the drop was by 15%.
The story is broadly similar in other metros. In the three major mandis of Bangalore city, namely Bangalore, Channapatana and Doddaballapur, potato arrivals in July 2009 dropped by around 31% compared to the same month last year, and the prices rose by a steep 93%.
But here is the surprise. Prices of all vegetables have risen consistently between 2004 and 2009. For instance, the all-India average price of potato has risen to Rs 1,231 a quintal by July 2009, from Rs 613 in July 2005. So, logically, the quantity supplied should have also risen over the years, as farmers would take advantage of the rising prices.
This is where the problem lies. The arrivals in Delhi wholesale market, for instance, had peaked to 34,637 tonnes in July 2005, but slid to just 7,958 tonne the year after and stayed stagnant thereafter, peaking again in July 2008. In sum, there is just no match between prices and supply because of the lack of a national market for the product. No wonder, at the whiff of a cut back in supply, the prices would flare up, like now.
Then, there are also suspicions of market manipulation. ?All our studies show that of late some artificial shortage of vegetables have been created in the mandis, which is pushing up prices, mostly in domestically produced commodities. Prices of imported commodities, like some exotic varieties of fruit, have remained fairly stable. This proves that at some level there is something missing,? said Arpita Mukherjee, professor, Icrier.
The problem is likely to get worse. Why? Over the years, the organised retail has started influencing the supply of these commodities. Most chains, including Reliance Retail and Aditya Birla Retail, indicated to FE they procure around 70% of their produce from farmers in places such Andhra Pradesh, where they are allowed to source directly from the farmers, or through their consolidation centres.
Smaller retail chains generally source 50:50 from farmers and mandis. Kishore Biyani-led Future Group, for instance, sources from the mandis. In the National Capital Region, where these chains and Safal?Mother Dairy?s fruit & vegetable chain?coexist, the total daily procurement by these chains is over 6,500 tonnes. To put that in perspective, it is about 10% of the total consumption of fruit & vegetables in the region.
This is one of the key differentiators for prices of fruit & vegetables. Procurement of such order in metros like Delhi and Bangalore has pushed down arrivals in wholesale markets, compounding the impact of the current spell of hot weather. Organised retail players have used their scale of operations to cool the prices at their shops compared to the local markets. On Tuesday, the prices quoted for tomatoes, potato, capsicum and onion at each of these chains, checked by FE, were on an average at least Re 1 lower per kg than at the major retail markets.
Yet as the footfalls at these places are usually from the more affluent sections, the benefit of the lower prices has gone to them than the poor.
As the experience of even Safal shows, the benefit could have been more widespread if these players had been allowed more leeway. So neither has there been a national market for vegetables nor has the supply chain bottlenecks been sorted out. Trade sources and market participants too acknowledge that the poor monsoon in the main growing regions has kept the temperatures abnormally high. This in turn has put the limited number of cold storage facilities out of order. This has been followed by some panic buying by organised retailers.
So, among the many reasons, the biggest one is the falling supplies of fruit & vegetables in main mandis across the country, which has created a supply crunch for retailers at the local levels. No wonder, that food inflation for the week ended July 18 rose by 1.2%, with vegetable prices climbing up the highest to 4.9%.