Tomato prices are surpassing the price of apples to the delight of the traders. As late as May and early June 2023, tomatoes were being dumped by farmers across the country as prices ruled at dirt cheap levels.

Farmers reacted by neglecting the standing crop, not protecting it against diseases and not taking up new plantings in most cases. The price trigger was set off by late June as arrivals dipped and combined with unprecedented torrential rain in north India, hitting supplies.

Six to nine months preceding the price spike, farmers were faced with low prices, which led to arrivals dropping. A similar trend was seen in 2021 as well, when tomato prices surged following a spell of low prices.

Economists, now and in the past, have recommended cold storage and tomato processing as measures for smoothening price volatility.

If cold stores were the answer, why do we see such depressed prices in potatoes, especially in UP which has adequate storage capacity? In some seasons farmers were unable to pay for the storage as the prices never picked up.

Also, for tomatoes, cold storage is hardly an option given the multiple harvesting windows across the country and demand-supply dynamics changing rapidly. The tomato process option also comes with its problems. Firstly, processing cannot be done sporadically. Secondly, the quality of tomatoes is also crucial for processing.

Substituting canned tomato puree for fresh tomatoes in Indian homes is easier said than done, as Indians are used to consuming fresh vegetables. Our consumers would pick a fresh potato over a cold stored potato, which is the preference for fresh vegetables, trying to change the habits of consumers for managing inflation could be a long-drawn effort.

Market liberalisation

Since early 2010, vegetable farmers have been allowed to sell outside APMC (Agricultural Produce Market Committee) yards, and the private sector has been given a bigger play to improve price realisation for farmers.

Despite the market being liberalised, agri-tech start-ups and modern retail corporates benchmark their prices to APMC prices as the APMC mandies are still the largest arriving locations.

So merely opening up or de-licensing trade in vegetables did not result in better competition or better prices for farmers. The government too sporadically intervenes in the market which distorts the market further, providing little relief to the stakeholders.

So farmers are being denied a stable price regime, stymieing their investment plans. So now that prices are skyrocketing, some tomato farmers have struck gold, but a majority who based their planting on the low prices ruling earlier will rue their luck. But once farmers start planting more tomatoes, the current scarcity can turn into a glut once again hitting prices as we have no mechanism to gauge the macro impact of individual decisions.

This scarcity-glut cycle can be arrested by introducing regulations on price discovery, empowering farmers to participate in price negotiations through a mechanism to regulate the price discovery and volatility management systems in the market.

Achieving price stability through necessary regulations for price discovery and volatility is the sustainable solution to deliver stable production and prices.

Many sectors such as power (Central Electricity Regulatory Commission), pharma (National Pharmaceutical Pricing Authority) and financial markets (Securities and Exchange Board of India) have national level regulatory bodies, except agri markets which are left unregulated on matters of price discovery and volatility.

Strangely, the APMC Acts have no reference at all to price discovery systems and volatility regulations, but are largely an administrative manual of formation and conduct of committees.

A petition has been made to Competition Commission of India pointing out to the absence of regulations on market price discovery, volatility and surveillance which has resulted in a dominant position of the buyers over the sellers, rendering the farmers mute spectators in the market.

A proposal being pursued with governments is to introduce the concept of bargaining councils, which will look to:

Provide a safety net for farmers and prevent traders from controlling prices, and a platform to negotiate a reserve price with the buyers/traders by the farmers under a legal framework that is to be established.

Negotiate between representatives of two sides, facilitated by the State government, for which a Secretariat can be established under Director of Marketing.

Ensure auctions and negotiations continue as they happen now, at prices not less than the negotiated reserve price.

Amend the rules under the APMC Act to include the concepts of Negotiated Reserve Price, and the setting up and empowerment of a Collective Bargaining Council (CBC).

Enforce the negotiated reserve price like any trade contract, and any breach of which can be challenged under the existing commercial laws.

Set up at the national level, a Fair (or Farmer) Trade Council with functions of coordination with Secretariats for bargaining in the States, besides other knowledge and stewardship functions vested with it, an equivalent of CII or FICCI for farmers, with funding support.

In the US, the Agricultural Fair Practices Act of 1968 recognises the vulnerability of farmers and permits them to form collective bargaining councils to negotiate prices with their customers, and these are functioning effectively even today. Similar provisions are available to farmers in Australia.

Doubling of farmers income is possible if the system recognises and acts to correct the imbalance in the bargaining power of farmers, enabling this group to retain at least 50 per cent of the consumer price, instead of government having to rescue the farmers or the consumers.

The writer is Founder, FPO Market Linkages Foundation, Bengaluru

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