IN WHAT clearly indicates supply-side disruptions after states enforced lockdown to stymie the spread of the COVID-19 pandemic, wholesale prices of essential commodities, especially vegetables, have shown a sharp increase during the last fortnight of March.
The average countrywide prices of vegetables such as onions and tomatoes, which were softening in the first fortnight of March, recorded a perceptible spurt in the second half of the month after March 15 when lockdowns became effective, according to data compiled by the Department of Consumer Affairs.
In the normal scenario, if there are disruptions in supply chains, retail prices increase and wholesale prices drop. But, now, since there is possibly a glut of stocks at one place and goods are not moving, wholesale prices are also showing an increase, economists and agri experts said.
The experts attributed the rise in prices of the essential commodities such as vegetables to purely supply-side issues, instead of production-linked problems. They also specifically pointed to the lack of transportation and labour to lift stocks from wholesale markets, leading to disruptions in the movement of stocks from production centres to the retail level, even as prices of certain commodities like edible oils have been impacted because of a slowdown in production due to factory closures and labour shortage.
Availability low, prices affected
Supply-chain disruptions, and not so much, production related problems, led to volatility and increase in prices of essential items in the first 15 days of March. Stocks lasted at the retail end, but now, lower production due to labour shortage, is affecting both prices and availability.
A closer look at the detailed breakup of prices of essential commodities shows that after the drop during early-March, onion prices rose 9 per cent between the first half and second half of March, more than double the rise from last year’s level, according to the data. Though the wholesale price of tomatoes is at a lower level than last year, prices shot up by nearly 37 per cent during the March 15-April 3 period to Rs 1,751 a quintal (as on April 3) as against a 3.8 per cent fall during the preceding fortnight.
Prices of potatoes and tomatoes at the wholesale level jumped 37.5 per cent and 46.6 per cent, respectively between March 1 and March 31. At the retail level too, prices have increased sharply during the period. Prices of potatoes increased 30.5 per cent (to Rs 27.59 per kg on an average) and tomatoes increased by 32.6 per cent (to an average Rs 25.33 a kg). In last three days, the prices did soften.
Also, what has affected consumers is the volatility in prices during the last 20 days, primarily due to sporadic release of supplies. For example, the wholesale prices of perishables such as tomatoes rose 7 per cent on March 27 — the second day of the 21-day lockdown. The third day, the prices fell 1 per cent, only to rise almost 4 per cent on March 9. The prices of both potatoes and tomatoes dropped over the next five days till Friday.
Prices for pulses have risen 5-8 per cent during March 15-April 3, for sugar by nearly 2 per cent, and for milk and loose tea prices at wholesale 2.4 per cent and 10 per cent, respectively, data showed.
Producers point to low capacity utilisation at plants. “At present, most of our plants are working to meet the demand. However, we are running them with low capacity due to low availability of manpower…The supply of products is smooth right now. We are also taking help of railway rakes. However, lean availability of labourers is becoming a hurdle. To cope with it, we are using automated loading to some extent. We are ensuring products get delivered to our depots and from there distributed locally as per the situation there,” said Angshu Mallick, Deputy CEO, Adani Wilmar. The company sells flour, rice and edible oil under the Fortune brand.
Wholesale price trends depend on movement of goods to consumption points. “Vegetables are daily essentials. Everyone needs that every day. If supplies are disrupted, whatever limited supplies are coming, at the wholesale level, higher prices will be charged. It is a very murky situation at present. Wholesale prices depend on whether things are moving or not,” Ashok Gulati, economist and Infosys Chair Professor for Agriculture at ICRIER, said.
“In case of pulses, when people know they can’t go out and are unsure about availability of milk and vegetables, there is a sudden spike in demand for pulses because people are buying higher quantities,” Gulati said. With disruption in supply chain, shortages are expected to increase further, he said.
The price rise, especially for fruits and vegetables, is being seen mainly due to supply-side problems, not because of drop in production, but disturbance in movement of goods, Devendra Kumar Pant, Chief Economist, India Ratings & Research said. “Some issues are also being reported at the retail end due to the slow rate of replenishment of stocks, which would have an impact on prices,” he added.
World food prices, meanwhile, fell sharply in March, hit by a slide in demand tied to the pandemic and a sharp fall in global oil prices, according to data released by the United Nations food agency Thursday. The Food and Agriculture Organization (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 172.2 points in March, down 4.3 per cent from February.
“The price drops are largely driven by demand factors, not supply, and the demand factors are influenced by ever-more deteriorating economic prospects,” said FAO Senior Economist Abdolreza Abbassian.
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