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Brittle supply chain leads to soaring vegetable prices

Soaring vegetable prices have nothing to do with production,going at the same pace as last year.

Written by Sandip Das | New Delhi | Published: August 14, 2013 3:02:26 am

Despite the scare scenario painted for production trends for key vegetables,it turns out that there is no dip in availability. This includes onion,whose prices have flared in the past few weeks.

Data from the past two years compared with that for the current year indicates that the problem for the four vegetables that have a pan-India presence — onion,tomato,brinjal,potato — is because of logistics bedevilling the supply chain rather than any production woes.

Related: Lens on Maharashtra in onion crisis meet

For instance,onion production at the end of July this year is 17 million tonnes,about the same as last year. The production cycle for the crop is three months,which means the stock in the wholesale markets gets replenished every 45 days or so.

Year on year,as figures show,the production of these four key vegetables has been running at the same pace as before. Potato,for instance,has peaked at 41 million tonnes as there is a glut in the markets. For instance,Agra,which accounts for seven per cent of the total cold storage capacity of the country,is catering only to potato farmers.

The same trend shows for the two other major crops,brinjal and tomato. The softening impact of high stock is also visible in the monthly consumer price inflation. For instance,goods and beverages inflation in the new monthly CPI for July 2013 is at 11.24 per cent,which is a good 29 basis points lower than the index for July 2012.

Related: Elevated food prices putting pressure on inflation in India,says RBI

The fact that onion prices have suddenly flared despite the stable production is attributable to a brittle supply chain where traders can take advantage of short-term shortages. Of the total warehousing capacity of 112.37 million tonnes in the country as per government data,the space available for vegetables is less than 15 per cent,mainly in the private sector.

This means in any month,say August,a shortage can be perpetuated if the supply chain takes a knock. And all this has happened when a McKinsey study shows India is the second largest producer of vegetables in the world,accounting for about 15 per cent of the total global production.

C B Holkar,honorary director at Nafed and an onion trader from Nashik,the centre of Indian trade in the crop,said prices also flared as the Eid holidays created a gap in trading days last week. Coupled with the rains and the upcoming long weekend,he said there was enough space for traders to create an arbitrage opportunity.

This was happening despite sufficient a carry-over stock from the summer crop. Holkar said fresh Maharashtra and Andhra Pradesh onions would enter the markets only in early September.

An agriculture ministry official said traders had also found in the present gap a welcome chance to make up for their losses in the export market. He said Indian onions had been effectively priced out of the overseas market as the rival Pakistan and Chinese crops were selling at Rs 18 to Rs 20 a kilogram. Indian onion was being offered at about Rs 50 a kilo,so it had hardly sold abroad this year.

Government data shows India has exported 5,12,000 tonnes of onion in the first quarter of this fiscal,mostly dried,which is about 1.5 per cent less than in the same period last year. In July this year,Agriculture Minister Sharad Pawar ruled out banning export of onion saying it interfered with the image of a reliable supplier of the crop that India has been trying to develop.

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