Prices of Food Items Rising, Farmers’ Incomes Are Not: Here’s Why

Large traders have taken advantage by hoarding onions and potatoes, which they will release as retail prices go up.

Onion prices are going up, yet again.  

Image: Erum Gour/The Quint

When Wajid Ali Shah, the poet-king of Awadh, was dethroned and exiled by the Company Bahadur, to its capital Kolkata, his chefs found it difficult to recreate the meat-heavy cuisine of Lucknow. Although no corners were cut for the Nawab’s own table, the large retinue could not be fed in customary style on the modest privy purse that he was allowed. That is how the humble potato made its way into the Kolkata version of the Awadhi Biryani. Potatoes were inexpensive, so the royal chefs replaced a part of the meat in their recipes, with fried whole spuds.

Potatoes were once inexpensive, not anymore. Image: The Quint

Today, things would have been very different. Because, potatoes have become a rich man’s food. My local sabziwallah has been selling it for 50 rupees a kilo, for the past two months. He claims that others charge even more. This hasn’t stopped me from feeding aloo to my kids, because other vegetables are even more expensive. The only thing that had surprisingly remained relatively stable, was the price of onions.

• Onions were selling for Rs 10-12 a kilo last month, in Maharashtra’s Lasalgaon wholesale market. This week it has gone to Rs 30 a kilo.
  
• Every year, there is a small crop from Karnataka, Andhra Pradesh and Tamil Nadu that becomes available in August. This year, unseasonal rains has damaged a significant part of this.
  
• Wholesale prices of onions were much higher in the first few months of this year.
  
• As prices began to first moderate and then crash, onion traders began exporting in large quantities. Predictably, the government has banned exports, to deal with the onion shortage.
  
• Farmers haven’t gained a penny from the higher prices that you and I are paying for our fruits and vegetables.
  

Why Are Onion Prices Going Up?

But this is 2020, and good things aren’t meant to last long this year. In the past two weeks, onion prices have shot up faster than you can say Navratan Korma. Onions were selling for Rs 10-12 a kilo last month, in Maharashtra’s Lasalgaon wholesale market, which is the country’s largest onion hub. This week it has gone to Rs 30 a kilo. Another Rs 20 gets added by the time onions reach you and me.

There is the cost of trucking onions across states, the commission earned by traders in local wholesale markets, wastage caused by rotting, weight-loss caused by drying, and, finally, the margin earned by your local vegetable vendor.

Onions are mostly grown as a winter crop, which is why there is a steady supply from January to April. From May-June, onions stored by the big wholesalers begins to hit the market and normally prices rise till July. Every year, there is a small crop from Karnataka, Andhra Pradesh and Tamil Nadu that becomes available in August. This year, unseasonal rains has damaged a significant part of this summer-crop, and that has made prices shoot up.

Onion Tears of India’s Economy

Interestingly, wholesale prices of onions were much higher in the first few months of this year. In March, the onion prices were 112 percent higher in the wholesale market than last year. Prices continued to rise by a high 72 percent in April, but moderated to 5.8 percent by May. Then, the prices began to crash. The wholesale price of onion dropped by 15 percent in June, 26 percent in July and 34 percent in August.

As prices began to first moderate and then crash, onion traders began exporting in large quantities. In 2019-20, a total of Rs 2,340 crore worth of onions was exported from India. This year, in the first three months alone, onions exports cross Rs 1,200 crore.

One reason for that was that onion exports were banned late last year, after prices exploded in winter. The export restriction was only fully lifted in March this year. The higher exports since then might have eaten into the onions that were stored in godowns. That, in turn, has worsened the current onion shortage. Predictably, the government has banned exports again, to deal with the onion shortage.

On an average an Indian family eats about 4-5 kilos of onions every month. Adjust for people who are shuddh vegetarian – like our FM for example – then the average onion-eating family probably consumes 7-8 kilos per month. It is a valued staple because it adds bulk to any curry and makes bland vegetables more palatable. Tomatoes have a similar role in the cuisine of several parts of India. It sharpens the taste and adds bulk. Of course, nothing can beat potatoes when it comes to making a more expensive vegetable or meat feed more mouths.

How Lockdown Has Impacted Food Prices

It is unusual for all these three key vegetables – potatoes, onions and tomatoes – to become expensive at the same time. Ironically, the reason for this sudden jump is because farmers made big losses on their crops during the early part of the COVID-19 lockdown. Tomatoes, which go bad very quickly, sold for just Rs.1-2 per kilo, as transport got disrupted in April and May. The tomato shipments coming to the market right now, are from Maharashtra and the Southern states, where the crop would have been planted in the middle of the lockdown.

Reports suggest that farmers have grown less this season because they weren’t sure whether their crop would fetch proper prices.

This is yet another easily predictable impact of the lockdown, which the Modi government has failed to foresee. Of course, pro-establishment voices will claim that the high food prices that we have seen in the past few months, might be bad for consumers, but they are good for farmers who end up earning more. If that were true, the wholesale prices of food articles also need to go up at the same rate as retail prices.

No, Farmers Are Not Getting Richer As Onions Get Pricier

That, however, has not happened. Wholesale inflation in food articles was just 2.4 percent in the first three months of this fiscal, while retail food prices were up by over 8 percent.

Since then, WPI for food articles has been 4.1 percent in July and then dropped to 3.8 percent in August. Retail food prices for the same months went up by 9.3 percent and 9.1 percent, respectively.

In other words, farmers haven’t gained a penny from the higher prices that you and I are paying for our fruits and vegetables. If anything, farmers are probably worse off today, if rains have destroyed a part of their crop. On the other hand, it is very likely, that some large traders have taken advantage of this disruption in price signals by hoarding onions and potatoes, which they will release as retail prices go up.

All this could have been avoided, or at least its impact reduced, if central and state governments had acted with better coordination and planning. With such a wide network of cellphones and cheap data, there is no reason why crop information could not be collected proactively and in a systematic manner. What is the use of going digital, if we cannot plan for crop shortages and provide farmers with adequate price information?

If governments were serious about keeping food prices stable, without curbing agricultural incomes, then they would have spent more on building agricultural infrastructure, including proper storage facilities for ordinary farmers. Till that happens, both consumers and farmers will be at the mercy of the monsoons and large wholesale traders.

(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets@AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)