Systemic failure

Instability in prices of perishables must be addressed

Even as the retail food inflation rate continues to hover above the comfort level of the central bank, the wholesale prices of two key kitchen staples — onions and potatoes — have crashed below their production costs, causing widespread distress among growers. While some potato farmers of West Bengal, the country’s largest potato-producing state, are reported to have committed suicide because of monetary losses, many onion growers in Maharashtra are said to have lit bonfires of onion plants on the day of Holika Dahan (the burning of mythological character Holika) last week as a mark of protest against measly prices. What is truly worrisome is that though onions and potatoes, along with tomatoes, another perishable item of mass consumption, constitute the trinity of farm commodities notorious for perpetual and, more so, vicious price fluctuations, not much has been done to address this issue.

The current meltdown in the prices of onions and potatoes also seems to be the result of systemic failure, marked by the inability to foresee the impending crisis and take preventive action. The downturn in onion prices began as early as November, when the produce from the kharif and late kharif crops began hitting the markets simultaneously, portending an imminent glut. Yet, the Centre and the state governments chose to wait till February-end to get into action. While the Centre asked the National Agricultural Cooperative Marketing Federation of India and the Small Farmers Agribusiness Consortium to buy these commodities from major production centres and sell them in large consuming areas, the state governments offered financial sops like income support and transport subsidies.
 

However, these moves proved to be of little avail because of the limited capacity of these agencies to undertake market-support operations on the required scale. The growers had little choice but to go in either for distress sale or destroy the produce for want of recovering even the input costs. The option of holding these commodities for deferred marketing had its own pitfalls because of the low storability of kharif-grown onions due to their high moisture content, and inadequate refrigerated warehousing facilities for the safe upkeep of potatoes. Moreover, the cold store owners demanded the entire rental charges in advance, fearing that the farmers might not return to take back their stocks if the prices failed to appreciate adequately. Most farmers can, obviously, ill-afford to pay this amount without selling at least part of their produce at remunerative prices, which has not been the case this year. Besides, growers are usually wary of taking the risk of delaying the sale of their produce because of the uncertainty about the price trajectory in the absence of price-discovery mechanisms like futures trading or credible market intelligence.

This apart, the existing price-management instruments, such as the market-intervention scheme and the price-stabilisation fund, have failed to serve the desired purpose because of the paucity of funds, infrastructure, and manpower required for this job. What is needed, therefore, is to strengthen these measures by scaling up their operational capacity and, more importantly, putting in place facilities to foresee the production, demand, and price trends to facilitate timely remedial action. More investment is also needed to improve storage techniques and warehousing capacity for the perishable items produced during specific seasons but in demand round the year.