Who benefits from the rise in vegetable prices?

In the year that has gone by, one of the biggest burdens on the masses of working people has been the sharp and continuous rise in prices of vegetables. This added to the burden the people were already facing because of the rise in the prices of a whole host of other essential commodities. The rise in prices was particularly severe in the case of onions, and also potatoes and tomatoes. Together these three vegetables account for nearly 50% of India’s vegetable production. When prices of onions and potatoes rise exorbitantly, they immediately result in the rise of the prices of other vegetables as well.

According to the Union Agriculture Minister, Sharad Pawar, people should not complain about the rise in vegetable prices because allegedly it is the cultivator who benefits. “When farmers were getting more money for their produce, we should not complain”, is what he said. (Economic Times, 19 September, 2013). The facts show however that it is not the small and medium farmers, who constitute the vast majority of farmers, who benefits from the sharp hike in prices.

Analysing the fluctuation in onion prices in 2013, it is clear that the price hike occurred mainly between harvests. Moreover, when the prices fell with the arrival of the next harvest, it fell well below the normal price level. This means that, except for a very few big farmers who do not have to sell their crop as soon as it is harvested, the majority of onion farmers not only did not benefit from the hike in prices, but actually suffered losses. In fact, in December 2013, wholesale onion prices collapsed to Rs 7 per Kg in some markets in the Nashik region, leading to farmers’ protests. This was the time when onions were being sold in the markets of Delhi at above 35Rs a Kg, after having reached a peak of Rs 100 a Kilo in many towns.

A similar pattern was noticeable on the last occasion of such a sudden and sharp hike in the price of onions, in 2010. The experience of the 2010 onion price hike shows how it caused distress to the farmer in another way as well. Many onion farmers responded to the price hike of 2010 by increasing the acreage they devoted to onion production, only to have the wholesale prices at the next harvest remain low or even drop. In some places, the wholesale price was not even Rs 2 per Kg. The resulting bankruptcy caused several onion farmers to commit suicide. A repetition of this disastrous pattern can be expected with the next harvest this year.

Who benefits?

There is an entire supply chain from the farmer to the consumer, which is dominated by the big traders in the mandis where the vegetable produce is brought by the farmer and at the mandis where the supply is lifted by the final retailers. Most states have laws which stipulate that the farmers can sell their produce only at certain state mandis. The farmers either have to bear the cost of transporting their produce to these mandis or else pay a commission agent to do so and to find them a wholesale buyer. The wholesale buyer sends the produce to the terminal mandis and from there the produce is sold usually to small retailers through a process in which more intermediaries and agents are involved. At each stage of the process, the price of the produce is further raised.

The final price paid by the consumer therefore includes not just the price paid to the farmer, which is very low, and the costs of packaging and transporting, but also the collection fees levied by the state mandis, the fees of the various agents, and the margins of the big wholesale traders. In the spurt in onion prices that was witnessed in 2013, the addition to the wholesale price was as much as Rs 33 per Kg! The biggest share of this hike goes to the big traders.

Studies show that the governing bodies of the mandis are dominated by the big traders. They are very well connected with the mandi officials, the local politicians and with the big traders in other markets. The system allows the big traders and intermediaries to have a stranglehold over the whole process and over the majority of the farmers. A report of an official committee headed by Kaushik Basu, the former Chief Economic Advisor to the Government, admitted to “cartelization and collusion amongst incumbent traders”. The Minister of State for Agriculture Tariq Anwar has said that “we know that there are governance issues related to licensing of wholesalers, issues related to holding capacity of farmers, issues related to market prices information and a number of issues related to the whole supply chain.” This means that those in power know very well what the real issue is behind the hike in the prices of onions and other vegetable produce.

Sharad Pawar also tried to blame the latest onion price spurt on the unseasonal rains. What he fails to mention is that the big traders and other intermediaries exploit temporary and small shortages that can be attributed to weather in order to further hike the prices to exorbitant levels.

A look at the overall per capita production figures for potatoes, onions and tomatoes over a decade, reveals that the problem is not of overall shortage of production. In per capita terms, annual production of onion nearly quadrupled over the decade from 4.1 kg to 13.5 kg, that of tomato doubled from 7.4 kg to 14.8 kg while potato production increased from 22.5 kg to 37 kg.

A vegetable like onion which can be stored, is ideal for the traders who double up as hoarders. The winter rabi crop harvested in April-May, accounts for 60 per cent of onion production. Part of the crop must be stored to last the lean months, typically September to January, till kharif harvests arrive. Storage capacity lies mostly with the large traders in the supply chain. Traders build up their stocks from the rabi crop and then release them at higher prices in the retail market in the lean months. If they anticipate even a small temporary shortfall in production, they respond by hiking up the prices still further, as happened in 2013.

The solution

The system of state mandis and the APMC are supposed to have been set up for the benefit of the farmers. In fact, they have served the interests of powerful traders who have the capacity to hoard produce, push down the prices paid to the farmers and sell to the consumers at exorbitant prices. The state has invariably acted in the interests of these traders against the interests of the farmers and consumers.

For the past decade and more, the big bourgeoisie as well as giant foreign agricultural trading multinationals have been eying trade in agricultural produce in India as an area where maximum profits can be made. They want to replace the existing network, with a new network in which the profits from trade in agricultural produce would go into their pockets. Their ideologues shed tears for the plight of the small farmers and the consumers, and make out that if "intermediaries" are eliminated, and the farmers are able to sell directly to these multinationals, and these multinational companies then retail the produce to the consumers, then both farmers and consumers would allegedly benefit. What is left in the shade is that the giant multinationals are interested in taking over agricultural trade in India, not for the benefit of the farmer and the consumer, but to extract the maximum from both. In fact, control of agricultural trade by these giant multinationals will only exacerbate the problems of both farmers as well as consumers.

The problem is not one of state intervention or no state intervention, as is being made out. Bihar is an example of a state which has scrapped the APMC system and where the small farmers continue to be at the mercy of a whole horde of exploiters and intermediaries, while the state has completely abdicated any pretence of trying to maintain the mandis and related infrastructure. The problem is - what kind of state and in whose interests it should intervene.

The interests of the small farmers, as well as the interests of the consumers, that is, the working class and peasantry, can be protected and harmonised, if and only if wholesale trade in agricultural produce is nationalised and socialised. In other words, it must no more be an arena for private profiteering. There must be no place in agricultural trade for either the existing private trading companies or the multinationals who are trying to take it over.

It is the duty of the state to protect the interests of those who cultivate the food that sustains us all. The state must, in the first place, pay a remunerative price to the farmers and protect them from the vagaries of weather and other calamities. It must facilitate the process of the farmers selling their produce by providing all the infrastructure needed. The packaging and transport of fresh produce so that it reaches the end consumer in good condition must also be the responsibility of the state. The workers and peasants, the great majority of people who produce and consume these products, must take up the demand for the nationalization of wholesale trade as part of the program for the complete reorientation of the economy to serve the interests of the toiling people and not to fill the pockets of a handful of exploiters.

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