Tomatoes Price Volatility | 22 Jul 2023

Source: TH

Why in News?

Tomatoes, a staple vegetable in Indian households, have become a cause for concern due to their soaring prices.

• The sudden increase in tomato prices from ₹20 to ₹40 per kg in June 2022, reaching ₹100 per kg in July 2023, has raised questions about the reasons behind this price volatility.
• Despite the soaring prices, the inflation rate for tomatoes is surprisingly negative, creating a puzzling economic phenomenon known as #Tomato-nomics.

Why are Tomato Prices High?

• Tomatoes Production in India:
  • Tomato production is regionally concentrated in states like Andhra Pradesh, Madhya Pradesh, Karnataka, Odisha, and Gujarat, collectively accounting for approximately 50% of total production.
  • India witnesses two main tomato crops annually - kharif and rabi.
    • The Kharif crop is available from September, while the rabi crop hits the market between March and August.
      • July-August is a lean production period for tomatoes as they fall between yields.
  • Despite being one of the most cultivated vegetables, tomato production has been declining since its peak in 2019-20 at 21.187 million tonnes (MT).
• Reasons Behind the High Tomato Prices:
  • Extreme Weather:
    • Heatwaves and delayed monsoons in April and May led to pest attacks on tomato crops, affecting their quality and commercial realization.
      • As a result, farmers received low prices for their produce in the months leading up to June.
  • CMV and ToMV Virus:
    • The recent decline in tomato crops and the surge in tomato prices in Maharashtra, Karnataka, and other South Indian states can be attributed to the infestation of two plant viruses: the Tomato Mosaic Virus (ToMV) and the Cucumber Mosaic Virus (CMV).
      • These viruses have caused partial to complete crop losses in tomato plantations over the last three years.
      • As both viruses have a broad host range and can lead to nearly 100% crop loss if not treated in time, they have significantly impacted tomato yields, resulting in a rise in tomato prices.
  • Low Commercial Realization:
    • Farmers faced the challenge of low commercial realization for their tomato crops in the months leading up to the price surge.
    • Between December 2022 and April 2023, many farmers received prices as low as ₹6 to ₹11 per kg for their produce.
      • This led to a situation where farmers had to sell their crops at unprofitable rates or even abandon their produce, resulting in a shortage of supply.
  • Farmer Shifting from Tomato Production:
    • The low prices received by farmers in the previous year led to a significant impact on cultivation patterns.
    • Many farmers who contribute substantially to tomato supplies shifted their focus to cultivating other crops fetched higher prices in the market, motivating farmers to opt for alternative crops.
    • This shift in cultivation resulted in reduced tomato production, further aggravating the supply crunch and contributing to the surge in prices.
  • Supply Crunch:
    • Inferior-quality tomatoes forced many farmers to sell at low prices or abandon their crops, resulting in a crunch in tomato supply.
    • Incessant rains further impacted the new crops and transportation to non-growing regions.
  • Regional Drop in Production:
    • Tamil Nadu, Gujarat, and Chhattisgarh witnessed a 20% drop in tomato production, exacerbating the shortage.
• Impacts of High Tomato Prices:
  • Inflationary Pressures: The volatility of tomato prices has historically contributed to overall inflation levels in the country, affecting consumers' purchasing power.
  • CPI Impact: Tomato's price fluctuations have significant implications for the Consumer Price Index (CPI), making it a challenge for policymakers to control inflation.
  • Economic Distress: The high prices put a strain on households' budgets, especially for low-income families heavily reliant on tomatoes as a dietary staple.
• Possible Solutions for Reducing Tomato Prices:
  • Improve Value and Supply Chains: Enhance value and supply chains to address perishability and transportation issues.
  • Increase Processing Capacity: Convert tomatoes into paste and puree during peak seasons to ensure adequate supply during lean periods.
  • Encourage Direct Sales: Promote direct sales by Farmer Producers Organizations to provide farmers with a larger share of consumer prices.
  • Promote Cultivation in Poly Houses and Greenhouses: Encourage cultivation in controlled environments to control pest attacks and increase yields.

Why is the Inflation Rate for Tomatoes Negative?

• High Base Effect:
  • The negative inflation rate is a result of a high base effect. The index value for tomatoes in June 2022 was significantly higher due to soaring prices at that time.
  • In June 2023, despite a spike in prices, the index value was much lower compared to the previous year, leading to negative inflation.
• Calculation Method:
  • In India, the inflation rate is calculated on a year-on-year basis, comparing the index value for a specific month to the same month in the previous year.
  • The index value for June 2023 (191) is significantly lower than the index value for June 2022 (293), showing a 35% decrease.
    • The decline in index value from June 2022 to June 2023 led to negative inflation, despite a recent increase in tomato prices.
• Temporary Price Surge:
  • Tomato prices experienced a rapid increase within a short period, reaching Rs 100 per kg in June 2023.
  • However, this surge was not sustained, and prices began to decline afterward, contributing to the negative inflation rate.