Why vegetable prices are killing you

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Tomato prices have gone through the roof. This essential part of food in most households is selling at over Rs 60 per kilogram, in some places even up to Rs 80. In February this year, onion prices had similarly spiked for a few weeks, forcing families to shell out double-triple prices. So, what's going on? Is it a demand-supply problem, as claimed by traders and administrators? Or is it sheer profiteering, as the aam admi believes?

Actually, it is both - profiteering riding on the back of supply dips. This is happening because supply is generally not keeping up with growing demand. The slightest fumble in supply is an opportunity for traders - both wholesalers and retailers - to mark up the prices arbitrarily for a few weeks of bonanza.

This means that there is a growing shortage as population is increasing every year and so is demand. When you have this kind of finely balanced demand-supply equation, any disturbance, whether natural or manmade, gives the cue for prices to be hiked. This is followed by much hand-wringing by the government, and then the prices will settle down - but at a slightly higher level.

So, unless supplies grow to match the growing population, be prepared for these periodic hikes in vegetables prices. Somebody is getting a windfall, and he is unlikely to slip up an opportunity.

Take the case of tomato in the past few weeks. In the second week of June, tomato arrivals in Delhi's biggest wholesale market at Azadpur were 343 tons. In the third week arrivals fell to 301 tons, in the fourth to just 223 tons. That's a 35% reduction in supply.

What was the effect on tomato prices? They went wild. At Azadpur, the most frequently settled price on 7 June was Rs.6.7 per kg. After swinging wildly it was still hovering at Rs.11.30 on 17 June. By 24 June it was at Rs.18 and by 29 June it was nearing Rs.24. By 5 July it had set a wholesale record of Rs.37 per kg.

And this is just wholesale prices, that is, prices paid by wholesale traders in Delhi to farmers (or their contractors). The real rub comes after this when the big wholesale agent turns around and starts selling his stock to middlemen and retailers.

Prices double by the time they reach the aam admi. Thus the wholesale price of Rs.37 per kg translates into Rs 60-80 per kg by the time tomatoes are carted down from Azadpur or Shahdara or Keshopur mandis in Delhi to Kamla Nagar or Vivek Vihar or Punjabi Bagh.

A similar story can be told about some of the other vegetables - those that are linked to an all India supply chain, and are essentials. These include potatoes, and onions, and most fruits. The common vegetables - okra, brinjal, cabbage, greens - are largely produced in the vicinity, cost much less to the farmer and are not indispensable to North Indian meals. However, they may still show a bandwagon effect - when everything goes up they too rise.

Tomato's demand supply equation is imbalanced. In 2010 Delhi received 1.9 lakh tons of tomatoes in the whole year. In 2011 total arrivals were just over 2 lakh tons, in 2012 they had slipped slightly to nearly 1.9 lakh tons. Going by monthly trends, total tomato arrivals till 6 July this year is 1.2 lakh tons, more than the previous years in the same period.

If you compare 2010 with 2013, tomato supply in June has been 5 percent more in June this year, and over 30 percent more in the first week of July this year. Overall too this year has been doing better than 2010 - total tomato arrivals this year till 6 July were 30 percent more than the same period in 2010. But prices are higher than 2010.


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Keywords: vegetable prices,Tomato prices, onion prices, traders , wholesalers , retailers ,okra, brinjal, cabbage, greens ,Business news