Hyderabad: Even before we forgot the recent price shock with regard to tomato, the onion price spike is bringing tears to the consumer. Onion prices have shot up from Rs 40 a kilogram to Rs 80 a kilogram in less than two weeks in northern states. The government has imposed 40 percent levy on onion exports.
As if that is not sufficient, of late it allowed the import of onions from Afghanistan. The imports from Afghanistan could bring some comfort to the consumers in northern states but the quantities are not going to ensure any major and lasting relief. Besides the government has announced that it will procure additional 2 lakh tonnes of onions for buffer over and above the 5 lakh tonnes already produced.
Onion is an important component in Indian cuisine. It’s price rise could stir up a lot of anger among people. In the past governments have lost elections due to their inability to control the onion prices. The BJP lost Delhi state government election in 1998 as it could not control the onion price hike. In the same year the BJP government lost election in Rajasthan for the same reason.
These election results cautioned the Congress government led by Dr Manmohan Singh to ban onion exports in 2010. Since then, no government has taken onion price rise lightly. By the same token, the governments have not taken swift measures whenever the prices crashed due to supply- demand mismatches.
Farmers were left to themselves. Some state governments like the MP have paid the farmers the difference between the production cost plus 10 percent margin and the market price in the past few years. In such cases the farmers were saved from the crisis. But such mechanisms are not implemented in other states.
The centre is still studying the feasibility of this model. The problem with the onion is not that India did not produce enough. Admittedly there was a production problem in some producer markets with unusual weather conditions - prolonged heat conditions in Maharashtra and Rajasthan during this summer.
The disruption impact could have been mitigated with efficient supply chains involving well-developed cold chains. There is a worrying trend in food inflation, with sustained inflation for non-perishables (pulses, cereals, spices) keeping overall inflation elevated even as transient price spikes for perishables fade.
Last month in its State of the Economy report, RBI called for “major reforms in perishable supply chains covering transportation networks, warehousing and storage technologies”. But as the little onion indicates, that's only scratching the surface. India needs drastic reform across the board from procurement itself, down to the last mile consumer.
Tomato, onion, and potato (TOP) prices have always been critical from India's politico-economic perspective, as they are an indispensable part of various culinary preparations cutting across classes. Needless to say, TOP has become an essential ingredient of food preparation for the rich or the poor. Hence, policymakers must maintain the stability of TOP prices.
From a social perspective, TOP is an essential component of the consumption basket of all households cutting across economic classes but higher consumer prices impact the purchasing power and savings of those at the bottom of the pyramid. This shows that maintaining price stability is critical for creating room to manage the fundamentals of the 90 percent of the CPI basket, while letting the economic growth momentum continue.
While the TOP fundamentals can be controlled through policy measures, by moving the consumption up in the value chain, enhancing storage and supplies and market transparency, we must do so to control what is within our control. Of the 90 percent, Much of the price impact of many other components of the CPI basket such as edible oil and fuels may not be in the control of policy-making.
Given climate change, extreme weather events are expected to join the list of factors impacting the supply of TOP, making it all the more important that we work on improving the fundamentals. The first would be to augment supplies. The scope is limited by various factors, from access to quality inputs to finding the market to sell at prices with sufficient margins.
When in surplus, we have the choice of storing it. While cold storage has become the norm for onions, no one has real-time data on storage. These storages are private with no obligation to report the data compared with Warehousing Development and Regulatory Authority (WDRA)-accredited warehouses.
Moving Up The Value Chain
The other choice for policymaking is to move onion up in the value chain by processing them into onion flakes and powder. Measures to enhance the adoption of processed onion products and technology matching the consumption needs of the population is something on which there has yet to be much of a research focus.
While incomes have increased, urbanisation is growing and more women have joined formal sectors, India's overall processed food sales are at a paltry 10 percent of total food sales compared with other developing countries such as Thailand and Brazil where it is 20 percent and 25 percent, respectively. If we were to solve the problem of TOP-induced inflationary pressures, policy needs to focus on promoting awareness about processed TOP products, incentivising investments in processing technologies, promoting research into processed TOP products that match the consumption pattern and making them available at affordable prices.
Moving TOP in the value chain will not only lead to demand planning but also signal growers and create the opportunity for contract farming to increase supplies. Further, processors of TOP with committed retail prices for a fairly longer period will cushion any price instability in the markets. Increased procurement by processors would result in better price realisation and hence stability in growing interests and inculcate quality culture among TOP growers.
Also read: Centre says onion prices in Maha fell 5-9 pc after its decision to fix minimum export price
A healthy processing industry would also need a well-developed cold storage industry connecting them to the world of finance. This requires that there should be more WDRA accredited cold storages or mandating TOP storage in WDRA-accredited storages with timelines. The availability of real-time storage will bring transparency to storage and promote transparent price discovery.
Further, electronic markets would need to cater to transactions in TOP aided by data collection on sowing, crop health, rainfall, and harvest, like other major crops. Collection and dissemination of this data will strengthen the price discovery process and make the supply chain efficient in reaching TOP to consumers.
India's agri-products industry is estimated at over $400 billion. Its share of global agricultural production is nearly 11 percent, but its share of global exports of food products is less than 3 percent. Its share of global food processing is even lower at around 2 percent, according to a report brought out by the Boston Consulting Group and the Federation of Indian Chambers of Commerce and Industry (FICCI).
The inability to export its food products only highlights the inefficiency in the supply chain itself. Only 2 percent of the fruits and vegetables in India undergo primary processing. In Brazil nearly 70 percent do, in China, the figure is 23 percent. A reputed think tank, Efficiency for Access (EforA), estimates the market opportunity for cold chain integration in India at over $19 billion.
It's not that the cold chain sector has not attracted investments. Recently over 100 projects were sanctioned with a value of around $41 million. Extensive government support does exist with financial assistance and subsidy schemes for cold chains across the country, from installation to operations. Subsidies to the extent of 35 percent of the project cost of cold chains are available, rising to nearly 50 percent in scheduled areas.
A Rs 1 lakh crore Agriculture Investment Fund (AIF) is in place to provide collateral-free loans and offer interest subventions of 3 percent for cold chain development. Several other schemes are available through the Pradhan Mantri Kisan Sampada Yojana. There are other financial schemes available through the Mission for Integrated Development of Horticulture (MIDH), implemented by the Department of Agriculture Cooperation and Farmers Welfare (DAC&FW).
Schemes like the Warehouse Infrastructure Fund and Private Entrepreneurs Guarantee further incentivize building cold chain integration capacities. Yet the growth envisaged in the sector remains low. The Ministry of Food Processing Industries indicates that the cold storage sector has been growing at 11.8 percent over the last five years, but this is on a low base and very, very far from the growth rate that is necessary—around 20 percent plus over five years if India must do justice to its farmers and consumers.
A recent study by the Central Institute of Post-Harvest Engineering and Technology (CIPHET) highlighted that nearly $16 billion is lost in the post-harvest value chain for farm produce in India owing to the lack of proper logistics and storage facilities. That's not to say that the government has not made its efforts. India's storage capacity for food grains is 790 million tonnes.
But its cold storage facilities at 37.5 million tonnes are largely limited to four states and do not cater to large sections of agri-produce, each of which has distinct storage characteristics. The vast majority of India's current cold storage caters to a few categories of produce like potatoes and onions.
Less than 10 percent of the country's produce pass through a cold chain
What is significant to note is that most losses in products like fresh fruits and vegetables occur in the first mile i.e. the farmgate and post-harvest handling. Storage availability at farm-gate level packhouses for perishables is abysmally low, leaving the farmer at the mercy of middlemen and throwaway prices. The EforA coalition noted that the National Centre for Cold Chain Development (NCCD) had identified a 99 percent gap in packhouses. As of 2020 this gap remained.
None of these problems could be resolved unless the fundamental structure of Indian farm produce markets changes. That change could only come about with a major reform of Indian agriculture from cropping to last-mile food produce sales. The government schemes are but starters. India needs nearly $40 billion over the next ten years to completely recast its agri-markets according to some estimates, more so with the fragmented and highly dispersed structure of farming.
Technology from data mining with big data-based knowledge using remote sensing, satellite imagery, and high spatial resolution at the farm levels will have to come into play.
