Price stabilisation Tomatoes onions potatoes
Editorial Notes

[Editorial Notes] Price stabilisation of Tomatoes-onions-potatoes (TOP)

Tomatoes-onions-potatoes (TOP) are the three basic vegetables that face extreme price volatility and the government often finds itself on the edge in fulfilling its dual objectives of ensuring remunerative prices for farmers and affordable prices for consumers.
By IASToppers
October 16, 2019

Contents

  • Introduction
  • IT’s Input
    • What is Minimum Export Price (MEP)?
  • Tomatoes-onions-potatoes (TOP) pricing
  • Operation Green Top
    • Comparison of Operation Green TOP and Operation Flood
  • Suggestions for stabilising retail prices of TOP
  • Conclusion

Price stabilisation of Tomatoes-onions-potatoes (TOP) 

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Introduction

  • In September 2019, onion retail prices crossed Rs 40/kg in Delhi. As a result, the government imposed a minimum export price (MEP) of $850/tonne.
  • Later on, as prices went further up to Rs 50-60/kg, stocking limits were imposed on traders and exports of onions were banned, created problems in neighbouring countries, especially in Bangladesh. Currently, the tomato retail prices have again gone beyond Rs 50/kg across the country.

IT’s Input

What is Minimum Export Price (MEP)?

price-stabilisation-of-Tomatoes-onions-potatoes-iastoppers Price stabilisation of Tomatoes-onions-potatoes (TOP)

  • Minimum Export Price (MEP) is the price below which an exporter is not allowed to export the commodity from India. It is a kind of quantitative restriction to trade.
  • Government fixes MEP for the selected commodities to control domestic price rise and augment domestic supply. This is intended to be imposed for short durations and is removed when situations change.
  • For instance, minimum Export Prices (MEP) of US$ 450/MT on Potato was imposed in June, 2014 to increase domestic supplies in view of rising retail and wholesale prices in domestic markets. This continued for almost 8 months uptill surplus supply of potato in the domestic markets and consequent rapid fall in price led to its removal.

Tomatoes-onions-potatoes (TOP) pricing

graph-2price-stabilisation-of-Tomatoes-onions-potatoes2-iastoppers

  • From the above figure, one can see that onion is the most volatile, followed by tomato and potato.
  • Potato is the least volatile because of higher processing-to-production share (7 per cent) than onions (3 per cent) and tomatoes (1 per cent), and also because of large storage facilities for potatoes.
  • In fact, of the total 8,000 plus cold storages in India, 90 per cent are used for storing potatoes. On the other hand, tomatoes can’t be stored for long.
  • The current spike in tomato prices is due to lower supply from major tomato producing states like Maharashtra and Karnataka owing to heavy rains.

Operation Green Top

  • The government announced “Operation Green-TOP” with an allocation of Rs 500 crore in its budget of 2018 to build value chains of TOP on the lines of Operation Flood (AMUL model).
  • The scheme is implemented by the Ministry of Food Processing. However, the progress is operation Green TOP is not that much.

Operation-Greens-Mission-iastoppers

Comparison of Operation Green TOP and Operation Flood

  • The AMUL model is based on large procurement of milk from farmers’ cooperatives during the flush season and using it during the lean season and distributing milk through an organised retail network.
  • Moreover, milk does not pass through any APMC (Agricultural produce market committee) involves no commissions, and farmers normally get 75-80 per cent of the consumer’s rupee.
  • On the other hand, TOP are mostly traded in APMC markets, with mandi fees and commissions. This results in farmers getting less than one-third (25-30%) of the consumer’s rupee. This asks for massive reforms in APMC.

Suggestions for stabilising retail prices of TOP

Large storage for buffer stocks

  • Large storage for buffer stocks has to be created. While potatoes and onions can be stored, repeated stocking limits on onion traders discourages private investments in modern cold storages.
  • As per Essential Commodities Act, anybody trading or dealing in the commodity are prevented from stockpiling it beyond a certain quantity. Hence, for inviting large private investment in storages, this Act has to be removed.
  • If the government feels that traders are cooperating secretly to take the benefit of the market, then the Competition Commission of India should look into it.

Increase processing capacities for TOP

Increase processing capacities for TOP iastoppers

  • Since buffer stocking for tomatoes is not possible, the solution is to increase processing capacities. For this, the GST for tomato puree and juice should be reduced from 12 per cent to 5 per cent.
  • To propagate the use of processed products (tomato puree, onion flakes, powder) among urban and bulk consumers, the government should run campaigns in association with industry organisations.
  • Most of the advanced countries use large quantities of processed tomatoes and onions, which can be stored conveniently. India needs to have time bound targets to process and export at least 10-15 per cent of TOP production.
  • While India exports 10-12 per cent of onion production in fresh and dehydrated form, it exports less than 1 per cent of tomatoes and potatoes
  • Hence, it is time that India should starts using these relatively new products, like dehydrated onions, tomato puree, shredded potatoes and frozen tikkis/french fries.

Price stabilisation of Tomatoes-onions-potatoes (TOP) iastoppers

Direct buying from FPOs

  • Direct buying by organised retailers from farmer producer organisations (FPOs) through contract farming, bypassing the mandi system, should be encouraged.
  • Like dairy cooperatives, TOP cooperatives and retail outlets across the country should be opened.
  • For better functioning of such cooperatives, better infrastructure should be provided through public-private partnership (PPP), commission should be reduced and contract farming should be encouraged along with setting up of private mandis.

Conclusion

  • The government needs to find a sustainable solution for price stabilisation of TOP, rather than taking temporary ad hoc measures.

 

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