Volatility in vegetable prices has increased in the last four years not just because of weather-related events but demand-supply mismatches, causing a problem for consumers, farmers and policymakers, according to a Crisil report released Monday.
“The inflation volatility is bad for consumers and farmers and distracts policymakers in the short term, forcing frequent and repeated price smoothening measures,” Crisil said.
Vegetables have a 6% share in the overall inflation basket and account for 15.5% weight in the food category.
“In the past 100 months, CPI vegetable inflation was above its period average of 3.8% in 49 months. It was above 7% in 35 months, above 10% in 30 months and above 20% in 13 months,” Crisil economists noted in their report, pointing to higher volatility during the FY20-23 period compared with FY16-19.
The report highlighted that potatoes, onions and tomatoes were the primary reason for the volatility in food prices, rising 9.1% on average during this period, compared with 4.8% annual inflation for other vegetables.
Tomatoes, Onions and Potatoes account for a 5% share of India’s food basket.
The high prices of tomatoes was one of the reasons for the vegetable price shock, which drove retail inflation to a 15-month high of 7.4% in July and 6.8% in August.
Data released earlier this month showed that inflation eased to 5% in September as tomato prices declined.
“Prices of tomatoes (a major driving force) and several other vegetables fell sharply by September. Onion prices, though, remain a pressure point,” Crisil noted, highlighting that “vegetable prices can surge afresh.”
Crisil pointed out that one reason was the production of vegetables not keeping pace with their demand.
Vegetable production grew 1.6% between FY14 and FY23, compared with 2.6% growth witnessed in the previous decade.
“A larger base, plus the impact of more frequent and intense weather shocks, have slowed production growth,” it said.
It also underlined the high losses and wastages in harvesting, packaging, transporting, storage and marketing and the low level of food processing as causes for volatility.
The research said that while the country needed to move to more hybrid varieties to increase yield, the country also required investment in post-harvest infrastructure and short-term policy interventions to ease prices.
The government had announced Operation Greens to improve vegetable supply and create infrastructure in 2019, but Crisil said that the scheme would take time to bear fruit.