The tomato market has witnessed a significant crash in prices across major markets due to oversupply, plummeting from approximately ₹8000 per quintal to a mere ₹200-300 per quintal.
Just a month ago, tomatoes were prohibitively expensive for most households, but their prices have now dropped so drastically that farmers are choosing to dispose of their produce rather than bear the costs of storage and transportation. This cycle of price volatility, which affects both consumers and growers every alternate season, is a familiar challenge in the world of essential groceries.
The prices of this kitchen staple, which contributed to a sharp increase in consumer inflation in July, have tumbled in major markets due to the surplus supply. In a matter of weeks, they have fallen from nearly ₹8000 per quintal to ₹200-300 per quintal, as reported by farmers and intermediaries in the supply chain.
This issue underscores several problems, including the lack of price information for farmers, limited food processing capabilities, and what economists refer to as the ‘cobweb phenomenon.’ The cobweb phenomenon in agriculture, observed in some industrial goods as well, occurs when higher prices during a season of scarcity lead to increased cultivation, resulting in oversupply.
In July, the average retail price of tomatoes surged from around ₹30 per kg in June to ₹109 per kg, triggering a 7.44% spike in consumer inflation, reaching a 15-month high. However, retail inflation in August slowed to 6.83% due to a decrease in vegetable prices.
As of September 12, the minimum wholesale tomato prices were ₹200 per quintal (100 kg) or ₹2 per kg in Pune, according to data from the National Horticulture Board. In Hyderabad, tomatoes were available at a minimum rate of ₹400 per quintal, while farmers in Mumbai were selling them for ₹800 per quintal.
Farmers in Aurangabad and Latur are resorting to dumping their tomato produce because the prevailing rates are unsustainable. Some are even selling tomatoes as cattle feed, as mentioned by Rajiv Nikam, a wholesaler at the Latur agricultural produce marketing committee.
The volatility in prices of perishable goods presents a significant political risk, as the urban middle-class is sensitive to even minor fluctuations in the prices of items like onions, tomatoes, and potatoes. For instance, in 1998, the ruling Bharatiya Janata Party-led state government in Delhi is believed to have lost an assembly election due to a sudden surge in onion prices.
The origins of the tomato crisis can be traced back to extreme weather conditions in states such as Maharashtra and Karnataka last year, followed by crop damage this year due to heavy rainfall. As prices soared, farmers expanded tomato cultivation, with summer acreage in Maharashtra increasing by 3% to nearly 37,000 hectares, according to data from the state’s agricultural department.
The government, although having limited control over perishable prices, intervened by purchasing tomatoes at high prices and distributing them in major cities at substantial discounts, leading to unprecedented profits for farmers.
In June, the Ministry of Consumer Affairs organized a “tomato grand challenge hackathon” to solicit ideas for streamlining the tomato value chain and ensuring its affordability.
A lasting solution lies in significantly expanding food processing capabilities, coupled with the recommendation that farmers should not react excessively to high prices by switching to commodities experiencing abnormal price spikes, as suggested by D Narasimhan, an economist at Tamil Nadu Agricultural University.
The core issue lies in the inherently perishable nature of tomatoes, their short production duration, and the inability to store them for extended periods, leading to production concentration in a few states, as stated in a recent paper by the National Bank of Agriculture and Rural Development. This inability to store the crop results in immediate selling after harvesting, leading to oversupply and subsequent price crashes.
