Food Amid COVID: Demand, Prices, Supply & Curious Case of Veggies

What explains price volatility of especially vegetables amid COVID-19?

Image used for representational purposes.

(Photo: Reuters

Applauding its health workers by claps, clangs, cheers, on 22nd March, India walked into a nationwide lockdown, which got extended till 3 May; its farmers have been locked out of the bounty of their harvest as consumers face rising prices. With fewer takers for their produce, halted transport and a supply chain in shock, as of now, very little is moving from farms to reach forks.

Erratic Price Movements

Market price movement for agriculture are best described by volatility and uncertainty. The Indian agriculture supply chain is highly vulnerable to shocks, rendering prices to be erratic. The skyrocketing prices of onions had only begun to ease as the country was throttled by the ripples of a pandemic, nipping in the bud any semblance of a price stability. Market arrivals and prices have been extremely erratic.

The nationwide lockdown has caused all but havoc for the agriculture supply.

Inter-district movements and inter-state movements have been strictly restricted. Local execution is slowly warming up to the relaxed movement of essential commodities; however, for crops that were standing tall for harvest, the damage has been met.

Farmers have had to make distress sales for their horticulture crops. Shortage of labour and unavailability of machinery, lower number of operational traders and trucks, increased farmer costs – have all reduced the price they receive for their produce. In Jharkhand, farmers who sold beans for Rs 25-30/kilo are now reporting making distress sales to the point of Rs 4-5/kilo.

Farmers in Alwar have reported an increase in labour price of 1.5 times and a non-availability of moisture meters at the fag end of the mustard harvest.

Figure 1 and 2 illustrate the prices of tomato, onion and potato for the same period in 2019 and 2020. Prices in 2019 are seen to be far more stable than in the same period in 2020.

Source: Author’s Analysis (http://www.apmcazadpurdelhi.com/Bulletin.htm) 

Author’s Analysis (http://www.apmcazadpurdelhi.com/Bulletin.htm)

Price Volatility

The volatility of prices is extreme in 2020 when compared with almost negligible price volatility in 2019 during the same time period. Arrivals have sharply dropped, prices seem to have risen (Figure 3), and not only is the average amount lower (Table 1), it is also very erratic. Variance in total arrivals of onion, potato and tomato is 31 percent, 60 percent and 1.5 times higher than their volatility in 2020.

Source: Author’s Analysis (http://www.apmcazadpurdelhi.com/Bulletin.htm) 

What Does This Imply?

Volatile prices and market uncertainty do not pose a significant economic challenge, especially in case of transparency of information. However, they do nudge a behavioural change within the actors of the supply chain.

Price speculation, hoarding, black markets and changes in cropping pattern are the most immediate and direct of changes that occur.

These will also result in challenges of food and nutrition security, inflation, suppressed rural demand and adverse environmental impact.

Early signs of direct impact are difficult to miss.

The Going Gets Tougher and More Expensive

Pre-Monsoon sowing of summer rice crop has covered more than 37 percent larger area in the same time as previous year. The same is also true for pulses and coarse cereals. This implies a shift away from the production of vegetables.

Having seen losses in this season, most farmers will switch to production of grains. This will result in a shortage of supply of vegetables in the coming season, thus, increasing the already rising prices.

With food prices having a weight of 49.7 percent in the Consumer Price Index (CPI),we are looking at a significant impact on headline inflation.

With a 10-30 percent rise in vegetable prices, between mid-2019 to early 2020, we saw India’s CPI touching 7.59 percent in January, brimming over a 6-year high. CPI eased out, relatively to the previous four months in March, on account of a fall in food inflation to 8.76 percent (8.88 percent for Rural India) from 10.81 percent in February. However, March numbers only corroborate to the easing period which saw a fall in food inflation from January to February, and then till 19 March, as data collection has been suspended since.

April food inflation is expected to be at a 10 percent mark. Prices of commodities like pulses, edible oil, including flour, is witnessing a steady increase.

The resultant decline in supply is not a function of lack of availability but of added costs due to high labour costs, lower availability of transport and some speculative hoarding at a local whole-seller level.

On seeing the decomposition of food inflation, vegetable and fruits account for 10 percent of the inflation, while eggs meat and fish account for 15 percent. Hence, retail prices for vegetables which are already up by 40 percent, and rising prices of eggs will result in a more long-term or persistent impact on prices.

The Troubles of Mono-Cropping

Most farmers switching to paddy will go a step back for the effort that is being taken on-ground to move more farmers to high value crops and overcome monoculture. Limited infrastructure for stock maintenance, FCI will have to plan for procuring and storing high production of rice after Kharif. This will be even more challenging given that this Rabi is projected to have a record high production of wheat (106.21 million tonnes).

An increased production of rice will lead to more demands on groundwater and can result in higher impact on AQI during stubble burning season of November.

Vegetable Basket Project

Ministry of Agriculture, China, had launched a ‘vegetable basket project’ to deal with the short supply of vegetables. Centers were created in semi-urban location to cater to the demand of a group of people. Over 22,000 hectares of land was put up under sheds, to supply vegetables to neighbouring areas. The demand estimation was done based on taking the population of one million as a unit, and then designing structures that would completely cater to the food demands of. This helped in regularising supplies through the year.

A similar approach can be taken towards fulfilling the demands of Indian consumers. The government along with non-government actors should promote and incentivise farmers, especially close to urban centers, to grow vegetables in low-cost protected agriculture units.

While the government subsidises the greenhouse structure, it is also critical to mobilise resources for aggregating demand to ensure that the vegetables will find a profitable market.

Additionally, a vast number of rural youth, who would have lost their jobs or will be transitioning in this period, can be gainfully employed, both in the creation of the low cost-protected cultivation structure along with the aggregation and selling of vegetables. Not only is this in the best interest of farmers and youth, it will also help consumers receive a steady supply and not leave them at the mercy of market volatility.

(Parikrama Chowdhry currently leads impact assessment and communications at an organisation that works towards driving agri-entrepreneurship and smallholder prosperity. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)