Understanding India’s food inflation: The impact of rising tomato, onion, and potato prices

High food inflation has become a significant concern for policymakers in India, as food items account for 45.9% of the Consumer Price Index (CPI). Recent surges in the prices of tomatoes, onions, and potatoes (TOP) have highlighted the issue, as these three vegetables, though making up just 4.8% of the food and beverages group and 2.2% of the overall CPI, can drive retail inflation upward due to price fluctuations.

Factors Driving the Surge in TOP Prices

Several factors contribute to the rising prices of these essential vegetables. Their short seasonal crop cycles, combined with their perishable nature, create storage challenges. Additionally, production is often regionally concentrated, making supply chains vulnerable to disruptions caused by weather events such as heatwaves and floods. Growing consumer demand and regional consumption preferences further strain the supply chain, intensifying price volatility.During lean seasons, supply shortages lead to high prices, whereas bumper harvests during peak seasons force farmers to sell their produce at distress prices, often below production costs. Such fluctuations are common due to the lack of consistent supply chain infrastructure and efficient distribution networks.

India’s Growing Production of TOP Crops
India’s production of tomatoes, onions, and potatoes has expanded rapidly, with 2022-23 estimates placing production at 20.4 million metric tonnes (MMT), 30.2 MMT, and 60.1 MMT, respectively. The country has become the world’s second-largest producer of tomatoes and potatoes. India has also surpassed China to become the largest producer of onions, contributing 28.6% of global production, according to the Food and Agriculture Organization (FAO).

Policy Interventions to Curb Price Volatility
The Reserve Bank of India (RBI) has proposed several measures to manage TOP price volatility:

Agricultural Market Reforms: Encouraging the development of private mandis to provide farmers more competitive options for selling their produce, while improving the functioning of existing Agricultural Produce Market Committees (APMCs).

Futures Trading: Reintroducing potato futures trading, which was banned in 2014, and exploring the possibility of launching onion futures to enhance price discovery and reduce market risks.

Storage Expansion: Developing cold storage infrastructure across the country to prevent losses during peak production. Cold storage for potatoes is concentrated in Uttar Pradesh, while Maharashtra dominates onion storage, highlighting the need for a more distributed network.

Processing and Productivity: Investing in processing facilities and increasing crop productivity to stabilize supply and reduce wastage.

These measures aim to mitigate supply disruptions, stabilize prices, and provide farmers with better market opportunities, ensuring both consumers and producers benefit from more stable price dynamics in the future.

with TOI inputs