ExplainSpeaking | Tomato-nomics: Tomato prices are sky-high and yet the inflation rate of its prices is negative. Why?

While commenting on this matter earlier in the month, Piyush Goyal, the Union Minister of Commerce & Industry, Consumer Affairs and Food & Public Distribution, said something quite interesting and revealing.

“If we compare with last year’s prices, tomato’s average rate is the same,” he said.

As things stand, various governments are trying to provide tomatoes at subsidised prices (of around Rs 80 a kg), even as market prices are now closer to Rs 200 a kg.

But quite interestingly, if one looks at the inflation rate in tomato prices, it is negative. In other words, the inflation rate suggests that tomato prices are crashing.

Look at CHART 1 sourced from CMIE. It shows the year-on-year inflation rate in tomato prices.

Data via CMIE.

It shows that Tomato prices fell by a whopping 35% in June (as against the prices in June 2022). In fact, tomato prices have been experiencing “deflation” (the opposite of inflation) since November 2022.

Perhaps the picture might change when the data for July comes next month, but as things stand, one can argue both ways. How can tomato prices be sky-high and crashing at the same time?

Why is the inflation rate negative?

Inflation rate is based on the value of an index. For each commodity there is an index, which works like a proxy of the market prices. Since market prices can vary depending on where one looks, it is always better to go with the value of a pre-decided index.

Further, inflation rate is calculated on a year-on-year basis in India. That means the June inflation rate of a commodity will look at the index value for June 2023 and compare it with the value of the index in June 2022.

CHART 2 shows the index value of tomato prices.

Data via CMIE.

It shows that while the index value has run up quite significantly in June (it is at 191), this value is much lower in comparison to the index value in June 2022 (when it was 293). To be precise, it is 35% lower than the June 2022 index value.

This is where Goyal’s comment is relevant because it doesn’t clearly tell what the prices were in June last year. The fact is that the tomato price index was so high in June 2022 that despite the spike in prices in June this year, the inflation rate contracted. To be sure, while this data is sourced from CMIE, its original source is the Union Ministry of Statistics and Programme Implementation.

Does that mean India doesn’t have a problem when it comes to tomato prices?

No. India does have a problem with tomato prices and what is worse is that it strikes consumers each year like clockwork.

Note the timing and the first paragraphs of the following assorted stories reported by The Indian Express, going all the way back to 2010.

June 2, 2022: “The average retail price of tomatoes in India has jumped 70% from a month ago and 168% from a year earlier to 53.75 rupees a kilogram as of Tuesday, according to data compiled by the food ministry.”

June 9, 2020: “As retail prices of tomato surged to Rs 60-70 per kg in almost all big cities, Consumer Affairs Minister Ram Vilas Paswan on Thursday said the price volatility was due to lean production season and high perishability of the commodity.”

July 30, 2017 : “Tomato prices, which have skyrocketed up to Rs 100/kg, are more likely to decline over the next fortnight as supplies from southern and other growing states are expected to improve, said a senior ICAR official.”

June 16, 2016: ”Tomato prices which have soared to Rs 80-100 per kg in retail markets across the country are likely to remain elevated for at least next two months as fresh crop is expected to hit markets only by August-end.”

July 29, 2014: “Tomato prices continue to remain high at Rs 80 per kg in retail markets of national capital region on short supplies.”

November 7, 2013: “Prices of tomatoes in retail market on Wednesday touched Rs 100 a kg and vegetable vendors have indicated that the prices are expected to come down by next week.”

July 22, 2010: “The prices of tomato,currently being sold at more than Rs 50 a kg in the retail market here,are expected to fall in the next 10 days with fresh arrivals from Maharashtra,Karnataka and Uttaranchal.”

Each year the government’s response is the same: That this is a temporary problem and that prices will come down when supply improves.

This time too the response is the similar:

“Tomato is the only commodity whose price has increased during the week. We all know that due to unseasonal rains, the prices of tomatoes have increased and as soon as tomatoes start arriving from Himachal Pradesh and some places of Karnataka, the prices will go down,” Goyal told ANI.

There are many things that can be done to avoid such spikes. Most important among them is to boost India’s ability to store its produce. The ability to store excess produce will not only help consumers (during phases when supply slumps) but also help farmers earn more. That’s because yet another set of stories relates to farmers dumping their produce after a bumper harvest.

Share your views and queries at udit.misra@expressindia.com

Until next time,

Udit