In 2009, the Swedish car company Volkswagen ran a unique ad campaign to promote its newly launched fuel-efficient car. They hired the ad agency DDB Stockholm and transformed the standard staircase of the Stockholm metro station into a ‘piano staircase’ which produced musical sounds when stepped in. People responded to this environmentally friendly energy-saving ‘fun’ signal, although it meant more hard work. They started avoiding using the escalator adjacent to the piano stairway.
In India, the farmers are no different. During November 2022, the price of tomato in the retail market was hovering around Rs 20 a kilo. This meant that the small and marginal farmers who are the actual growers were not able to recoup the farming cost. As per an estimate by the Reserve Bank of India, the farmers in India do not even realize 50% of the retail price for major traded crops such as tomatoes. The bulk of what the final consumer pays is apportioned by the middleman and traders. The margin between what the farmers get and the consumers pay are hosts of other charges such as commissions, mandi (market) charges, Agricultural Produce Market Committee (APMC) memberships fees, weighing and assaying charges, loading and unloading charges, and transport charges. And all of these jack up the final price.
In 2021, the Central government responded to this cascading impact of the price rise by trying to repeal the farm law. The argument was if there are more markets where farmers can buy and sell their produce, it will lead to price discovery for the small and marginal farmers, and at the same time, the retail price will come down. India has around 260 million people living in poverty and 83% of them fall in the category of small and marginal farmers (with less than 2 hectares of landholding size).
If farmers are to sell their produce, they had two options. The first is to sell directly to the government. The Central government procures 23 essential food items from the farmers through its agencies such as the National Agricultural Cooperative Marketing Federation of India Limited (NAFED) at minimum support price (MSP) which is usually higher than the market price. From the perspective of tomato growers, this should sound like a good option. However, for a perishable non-standardized crop like tomatoes, it is difficult to administer MSP. Unlike rice and wheat which can be stored naturally, tomatoes need cold storage.
Even if the government agrees to procure tomatoes at the MSP, these government-procuring outlets are not uniformly distributed with almost 70% to 80% procurement of rice and wheat procurement done from Punjab, Haryana, Uttar Pradesh, and Andhra Pradesh. Interestingly, these are states where most of the cold storage units in India are concentrated.
The second option for the farmer is to take their produce to the nearby government-designated mandi where in front of state officers they can auction produce to the middlemen.
To do that they need to store their perishable stocks in cold storage. The predominantly tomato growing states such as Karnataka, Gujarat, Madhya Pradesh, etc., have relatively much less cold storage units.Even if the farmer is lucky to get access to cold storage, he needs to book a minimum quantity of 50,000 quintals for their produce, something not possible for a marginal farmer. Nearly 20% of India’s tomatoes are wasted because of storage problems.
The third option for the farmers is to directly take the produce to the local mandi. But given that there are only 7700 mandis as against 6,60,000 villages, means a farmer has to arrange for transport, which again may not be a feasible option given the distance and booking a 400 quintals capacity truck all for himself. In India, the average agriculture yield is 2070 kg/hectare, and the marginal farmers given their land holding size can at the most produce 24 quintals, and therefore booking a truck is not cost-efficient.
An easier way out is to sell to village-level aggregators. In fact, in most instances, these marginal farmers are so debt-ridden they are obliged to sell their produce to the village moneylenders. In India, only 15% of the marginal farmers get access to formal credit, and most of the time they depend upon informal sources, for buying seeds, fertilizers, and other farming requirements. The cost difference for loan rates between the formal and informal sectors varies between 30-45%, annually.
Finally, in the best possible scenario if the farmer is able to take his produce to the mandis, then also it does not help. The bargaining power of the farmer is low. Under APMC Act, state government officers are meant to oversee activities related to auctioning such as the commodities traded are homogenous in quality, and the markets are equipped with basic infrastructure for taking correct weights and for making payments. In reality, however, these middlemen form a cartel and at the time of auction offer a substantially lower price to the farmers.
The argument behind repealing the farm law was that the reform in the APMC Act will allow farmers and middlemen to trade in markets, in addition to the already existing mandis. So long it was the state governments that were in the business of regulating the mandis. If additional markets for trading are created the bargaining power of the middlemen is likely to fall and the farmers will benefit. It is to be noted, it was because of the pressure from the middleman and big traders (some of whom are also state-level party workers and politicians), the central government could not repeal the farm law.
The present rise in tomato prices is purely how the marginal farmers reacted to the not so ‘fun’ price ‘signal’ they faced during last November. When the realized price is abysmally low and with the risk of pre-monsoon rainfall playing a spoilsport, it is quite natural for them to grow some other weather-resistant crops such as millets, jowar, soyabean, something they did. The cause of the price rise in tomatoes can be attributed to a lower supply and market imperfection.
(The author is Professor, School of Management, Mahindra University).
The post The Real Story Of Rising Tomato Price And Plight Of Small Farmers first appeared on IPA Newspack.
