Why is the POT ( potato, onion, tomato) sizzling again ?
Every monsoon the price of potato, onion, tomato POT starts moving north. The volatility starts hurting the kitchen POT before the festival season and by Diwali spices and pulses join party. Soon food inflation rips through the family budget. If elections are round the corner the effect is usually pronounced. With Bihar and Bengal going to the polls, the next six months could be a fiery roller coaster.
Like every year, the media highlighted what was happening as the rains started. The Financial Express in the month of July headlined an article ‘Tomato, potato are the new onion; prices more than double after reduced crop, lockdown’ Every year the Government first stops exports after the food inflation starts. It assures citizens that prices will soon cool.
The Indian Express highlighted in September ‘Explained: Here’s why the Centre has banned the export of onions’ . And predictably a few months later after the onion tears flow, it starts imports belatedly. In October the Business Standard reported ‘Onion prices drop a little but likely to stay until imports arrive. ‘ Like every year the imports will not arrive till Deepavali and the traders will make hay while the consumer cries. Though it will adversely affect the Bihar elections the Government will not be able to stop it.
I have been writing about this phenomenon in several newspapers and magazines for almost a decade. My December 2017 article Volatile agriculture prices may bring about electoral losses and my book India Emerging : From Policy Paralysis to Hyper Economics explains the phenomenon in detail. The phenomenon of Potatoes grown in Agra and Stored in Pune is elaborated in detail with data from the National Horticultural Board. The Government has recently amended the farm laws to make procurement easy. But removing APMC Mandis and arresting hoarders will never stop cartels or rural distress. Bihar banished the APMC Mandis in 2006 but the price volatility and rural poverty still remains. What will ease the situation for both the farmer and the house wife is development of many more alternative markets. Not on legislation alone, but on the ground. That is yet to happen.
Excerpts from ‘India Emerging : From Policy Paralysis to Hyper Economics’
published by Bloomsbury in April 2019 ISBN 978-9-3874-5772-0
Chapter 11 Volatility in Food Prices : Can it Be Controlled?
Mandi Politics and Monopoly
Once upon a time, mandis—vegetable markets—of India were thriving local marketplaces. They were nearby destinations where a farmer could sell his produce at a good price. But slowly, these mandi committees saw an influx of politicians who started creating coteries and monopolising the mandis. Most farmers outside the coterie had to wait for days to get their chance to sell in the mandis unless they paid a commission to mandi authorised commission agents or dalals. Then there were huge price manipulation, weight manipulation and delayed payments. Agricultural Produce Market Committee Act (APMC) was first proposed in 2003. Laws of APMC were drafted by each state separately and never favoured free trade. They made mandi committees all powerful and put farmers at the mercy of committees and commission agents.
The Act not only mandated farmers to sell exclusively at the mandi, but it also created a series of brokers and commission agents who would act as negotiators between farmers and traders. As a result, a farmer who could not negotiate cleverly and had less financial capacity to hold stocks got less than half the price of the commodities resold by traders to other centres. As farmers remained poor, commission agents and big traders became richer and politically influential.
The nexus of big farmer traders with political parties and moneybags of NCDEX futures market also contributed to the rise of trading cartels. Nashik and Lasalgaon mandis have traditionally been the centre of India’s onion and tomato trade. Farmer-traders understood the political power of onion, whose price has been volatile before elections since the 1980s. Less than a dozen traders reportedly control over 50% of the onion trade in India. APMC mandi committee system, where farmers are forced to sell their products only through mandis, is believed to have created such monopolies.
Since onions and tomatoes are integral to the Indian curry, a rise in the price of any of the two vegetables upsets kitchen budget. The political class that controlled the mandis in Maharashtra started using this leverage in politics. Elections soon became synonymous with volatility in the price of onions. Onion price volatility was extended to tomato price during the last decade, though tomato production is spread over much larger geography.
Potatoes, Grown in Agra, Stocked in Pune
In the winter of 2011, there was an excess production of potato in Punjab. Farmers in Jalandhar started throwing potato on the streets because prices had dipped below ₹100 per quintal (₹1 per kg) and did not cover even the transport costs to the mandi. Agriculture Minister Sharad Pawar stepped in and got traders of the prosperous Mumbai-Pune belt to pick up excess stocks.
Potatoes grown in Punjab and in the Indo-Gangetic belt were transported over 1,000 miles to be stored in cold storages of Maharashtra and Karnataka. Soon this trend was witnessed across the potato-growing belt. Mandi arrivals at UP, Bihar and West Bengal, which produced and consumed most potatoes, fell while that of Maharashtra and Karnataka rose. Potato, onion and tomato—namely the POT—were the three vegetables that accounted for 40% of all the vegetables consumed in India.
Together with onions and tomatoes grown in Maharashtra, the potato trade shifted to Maharashtra traders in the Mumbai-Pune belt, who had deep pockets and created a trading cartel. They started manipulating prices of potato, onion and tomatoes, making kitchens sizzle. Vegetable prices rose fourfold in the next five years. They not only rose steeply but they also became volatile. Traders ensured that prices dipped during procurement season so that they could buy cheaply. This caused acute farmer distress. They also ensured that prices peaked mid-season so that they could maximise profits. So, while farmers got hurt by the price volatility so did the consumer, as traders ruled the roost.
I wrote two articles, one in Women’s Era titled ‘Kitchen Under Siege’ and another in The Hindu Business Line titled ‘Potato Farming: India Makes a Hash of it’, giving the details of meagre potato arrivals in Agra, Patna and Kolkata mandis in the year 2013. Nearly three-quarters of India’s potatoes are grown in the Indo-Gangetic belt. But since 2011, the potatoes are stored in godowns at Maharashtra and Karnataka by the POT trading cartel.
The effect of this hoarding at away centres can be seen in Figure 11.1—a graph plotted with data from National Horticulture Board in 2013. Though 73% of the potatoes were grown in the Indo-Gangetic belt in the three populous states of UP, Bihar and West Bengal, that year just 6% of the potatoes found their way to the large mandis at Agra, Lucknow, Patna and Kolkata. On the other hand, two states of Maharashtra and Karnataka where just 3% of the potato crop was produced saw 52% of the potato arrivals in the mandis. It was not that the mandi arrivals were at the consumer centres.
The three large states of UP, Bihar and Bengal have a population touching 40 crore (400 million) which accounts for nearly a third of India’s potato consumers. Maharashtra and Karnataka have a population of 17 crore (170 million) by comparison. The data shows that the humble potato had to travel needlessly to distant godowns more than 1,000 miles away from major production and consumption centres, just because investors chose to stock it at away centres. Potato prices shot up unnecessarily as the consumer paid the cost of moving the potato stock to and fro that was incidentally more than what the farmer received for his produce.
This trend of hoarding at away centres accelerated in the last decade with the POT trade largely under control of the traders of the MumbaiPune-Nashik belt. It is reported that in the case of high-value pulses and spices, some of the produce is exported and the stocking is done in the Middle East. The price stability of the kitchen was completely lost during the period 2011–2015, but we will come to that later. The price rise was accompanied by wild seasonal swings, particularly during election seasons. It plagued the UPA government and is now plaguing the NDA regime. It is not that political parties and successive governments have not done anything to keep the prices under control. It is only that they have not done enough. They created the volatility and are now being bitten by a genie, totally out of control.