Systemic failure – Instability in prices of perishables must be addressed

Source: The post is based on the article “Systemic failure – Instability in prices of perishables must be addressed” published in the Business Standard on 15th March 2023.

Syllabus: GS – 3: Storage, transport and marketing of agricultural produce and issues and related constraints.

Relevance: About the price crash of onions and potatoes.

News: Despite the increasing retail food inflation, the wholesale prices of two key kitchen staples — onions and potatoes — have crashed below their production costs.

This is causing widespread distress among growers. The country’s largest potato-producing state, West Bengal has witnessed farmers’ suicide. Many onion growers in Maharashtra have lit their onion fields on Holika Dahan.

What are the reasons for the price crash of onions and potatoes?

The current meltdown in the prices of onions and potatoes seems to be the result of systemic failure. This is because,

Delayed 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. But both the Centre and the state governments chose to wait till February-end.

The limited capacity of state institutions: 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.

But the limited capacity of these agencies to undertake market-support operations have led farmers to either for distress sale or to destroy their produce.

Inadequate storage facilities: Kharif-grown onions have low storability due to their high moisture content. Further, potatoes have inadequate refrigerated warehousing facilities.

Absence of price-discovery mechanisms: The cold store owners also demand the entire rental charges in advance, fearing that the farmers might not take their stocks back if the prices failed to appreciate.

The absence of price-discovery mechanisms like futures trading or credible market intelligence further aggravates the issue.

Issues with existing price-management instruments: India has price-management instruments like the market intervention scheme and the price-stabilisation fund. But they have failed to serve the desired purpose because of the scarcity of funds, infrastructure, and manpower,

What needs to be done to prevent the price crash of agricultural commodities?

India needs to a) strengthen critical systemic measures by scaling up their operational capacity, b) put in place facilities to foresee the production, demand, and price trends to facilitate timely remedial action, and c) improve investments in storage techniques and warehousing capacity for the perishable items produced during specific seasons but in demand round the year.