Tomato prices raise concerns of food inflation, govt offers discounted stocks
The situation could potentially have a cascading effect on inflation in the months of July, August, and September
As tomato prices in the country continue to surge, reaching new milestones daily and lingering around the 100-rupee mark for several weeks, the central government has taken decisive steps to address the rising costs.
The Department of Consumer Affairs has announced today that it has instructed the National Agricultural Cooperative Marketing Federation and the National Cooperative Consumers Federation to procure tomatoes from Andhra Pradesh, Karnataka, and Maharashtra. These tomatoes will be distributed in areas that have experienced the most significant surge in tomato prices.
In response to the government's intervention, fresh tomato stocks will be made available to consumers in the Delhi-NCR region at discounted prices starting this Friday. This move aims to provide relief to consumers who have been grappling with skyrocketing tomato rates.
The recent irregular monsoon rains have severely impacted crops of perishable foods and disrupted the transportation of goods, resulting in shortages of essential cooking ingredients such as tomatoes, onions, and chillies.
However, the surge in prices of vegetables, particularly tomatoes, onions, and potatoes, collectively known as the 'TOP' grouping, along with other contributing factors, may hinder the anticipated easing of retail inflation based on the Consumer Price Index (CPI) for June. This situation could potentially have a cascading effect on inflation in the following months of July, August, and September. The Statistics Ministry is set to release the data on retail inflation on Wednesday, July 12.
The 'TOP' vegetables hold a combined weight of 2.2 per cent in the headline index (CPI-Combined) and account for 36.5 per cent in the CPI-Vegetables basket. Historically, vegetables with a weight of 13.2 per cent in the CPI-Food and Beverages basket have played a significant role in driving food inflation, as highlighted in a study conducted by the Development Research Group (DRG) of the Reserve Bank of India.
To determine the distribution centres for the fresh tomato stocks, the government considered the absolute increase in retail prices over the past month and the scale of consumption in each area. Although tomatoes are grown in nearly every Indian state, the southern and western regions contribute to approximately 60 per cent of the country's total production. Surplus produce from these regions is usually utilized to ensure a consistent supply to other parts of India.
A government statement explained, "The production seasons vary across regions, with peak harvesting occurring from December to February. July-August and October-November are generally lean production months for tomatoes."
The statement also attributed the price hike during this period to the monsoon season, which presents distribution challenges and increased transit losses, ultimately leading to price surges. Apart from seasonal price fluctuations, temporary disruptions in the supply chain and crop damage caused by adverse weather conditions also contribute to sudden price spikes.
At present, tomato supplies are being sourced from Gujarat, Madhya Pradesh, Maharashtra, and Andhra Pradesh. Delhi and nearby cities are receiving tomato stocks from Himachal Pradesh and Karnataka.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, stated, "June CPI inflation data will be released this week, with expectations at 4.6 per cent, higher than May's 4.25 per cent. This increase can be attributed to higher vegetable prices due to unseasonal rains causing supply disruptions. Furthermore, we anticipate core CPI inflation at 5.2 per cent, a 5-basis point increase from the May reading."
The DRG study report, authored by Puja Padhi, Himani Shekhar, and Akanksha Handa, emphasized that although tomatoes, onions, and potatoes make up a small portion of the Consumer Price Index Combined (CPI-C) basket, they significantly contribute to the volatility of headline inflation.
The report also highlighted that vegetable prices tend to be highly volatile due to their perishability and susceptibility to weather-related disturbances, coupled with less elastic demand, as these vegetables are staples in Indian households.