Opinion Spike in price of lemons underlines it: Key to reducing mismatch between supply and demand lies in boosting storage capacity

With a single lemon retailing at anywhere between Rs 10 and Rs 15, across the country, lemon prices are squeezing household budgets. Reportedly, the supply of lemons has fallen due to a decline in overall production. Lemon orchards are very sensitive to excess moisture and the supplies took a hit after exceptionally heavy rains in September and October last year. Chances of a quick correction in prices are low because the next crop will come in only by October. From the policymaking perspective, however, it would be a mistake to view this spike in lemon prices in isolation. It would be equally erroneous to imagine that the solution lies in boosting production alone.

High food inflation as well as wild fluctuation in food prices are fairly chronic events in India. The commodities keep changing through the year but the phenomenon remains the same. The most recent example of this came earlier in the week when overall inflation rose by 7 per cent, driven primarily by a spike in the prices of food items. Food inflation rose by almost 8 per cent. Often, it is the prices of perishables such as fruits and vegetables that are the leading contributors to price rise. While high prices draw attention primarily because they hurt consumers, there is another side of the story — of excess supply and the resultant crash in prices, which, in turn, bring financial ruin to farmers. Breaking this cycle of supply gluts and shortages will benefit both consumers and producers. The key lies in boosting India’s storage capacity as it can reduce the frequent mismatch between supply and demand.

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It is now widely accepted — a January paper from the RBI reiterates it — that “wastage of food products due to inefficient post-harvest practices is one of the important factors behind high food inflation in India”. The wastage happens for a variety of reasons but the lack of proper storage facilities is particularly important. If one looks at the warehousing stock per capita (measured in square meters), India at 0.02 lags far behind other big economies such as China (0.8), the UK (1.09) and the US (4.4). Not only is India comparatively deficient, but the existing warehousing is inefficiently distributed as well. According to the RBI, nearly 70 per cent of the country’s total capacity is limited to four states — Uttar Pradesh, West Bengal, Punjab and Gujarat — whereas states like Maharashtra and Karnataka, which have large export potential as well, do not have adequate facilities. Further, almost 70 per cent of all cold storage is for storing potatoes while only 30 per cent is used for multi-commodity storage, resulting in poor utilisation of existing capacity. Lastly, boosting cold storage capacity would be incomplete without a well-developed cold chain involving various stages from pre-cooling, pack-houses, refrigerated transport to refrigerated marketing display. This is where both the government and private sector need to invest to find a sustainable solution to repeated fluctuations and surges in the prices of everyday food items.