29 April 2024 : Daily Answer Writing

Q1) Why are TOP (tomato, onion, potato) crops susceptible to large price fluctuations? Elaborating upon the implications of inflation in horticulture crops, assess the role of Operation Greens in containing the same.

(250 Words/ 15 Marks)

Horticulture refers to the cultivation of ‘garden crops’ that include fruits, vegetables, medicinal, aromatic, and ornamental plants. Tomato, onion, and potato (TOP), are the three most cultivated horticulture crops and the most consumed vegetables in India. They are integral to the diets of most Indians.

 

TOP crops are susceptible to large price fluctuations due to the following reasons:

1. Seasonal Production: There is lack of year-round availability as TOP crops are produced only in particular seasons. This leads to abundant supplies in crop’s season, while shortages in non-season.
2. Perishability of crops, combined with factors like inadequate cold storage infrastructure, lead to large wastages.

E.g., 16% post-harvest losses in fruits and vegetables.

3. Most of the TOP production is concentrated in a few states.

E.g., Onion is mainly sourced from Maharashtra, Madhya Pradesh, and Karnataka. Extreme weather events (droughts floods etc.) in these regions drastically affect prices across the country.

4. Market imperfections:
5. a) Presence of large number of middlemen and practices like hoarding, speculations etc. add to the price volatilities.
6. b) Policy measures such as the Essential Commodities Act (ECA) and e-NAM have proved to be ineffective to control the price fluctuations. Price discovery mechanism remains opaque.

Inflation in horticulture crops has the following implications:

1. Impact on consumers:
2. a) Hunger and Malnutrition: Sudden price hikes can put significant strain on household budgets, leading to “squeezing of nutrition budget”.
3. b) Shrink Inflation results as companies resort to reduced quantities for same price to retain demand.
4. Impact on farmers:
5. a) Inflation harms credit availability for farmers as banks desist from giving loans due to sectoral uncertainties.
6. b) Income-uncertainty: Though high prices may provide one-time profits to the farmers, it often results in misguided price signals. It often causes oversupply and price crash in next season (cobweb phenomenon).
7. Agri-exports: High domestic prices reduce the export competitiveness of Indian horticulture products in global markets.
8. Monetary Policy Issues:
9. a) Challenges in inflation projection due to high volatility in horticulture products which form a large share of Consumer Price Index (CPI)
10. b) It negatively affects the inflation-targeting mechanisms of RBI by triggering the escape clause due to excessive food inflation.
11. c) Higher interest rates in the economy as monetary policy responds to high inflation.

To deal with the inflation in horticulture crops, Ministry of Food Processing Industries launched the “Operation Greens”. Initially limited to the TOP crops only, it was later expanded to include all horticulture crops (From TOP to TOTAL).

However, Operation Green has proved to be a mixed-bag in checking the inflation The following issues undermine the effectiveness of Operation Green:

1. Limited coverage, as small and marginal farmers remain marginalised and do not benefit.
2. Slow release of funds is undermining incentives for capacity-buildup. As a result, creation of storage and warehousing facilities is moving at glacial speed (too slow).
3. Price volatility in TOP remains as high as ever.

E.g., in July 2023, tomato prices reached all time high.

4. Price realisation for farmers remains poor. Farmers’ share in consumers’ rupee in TOP crops remains below 30%.

Horticulture is a key sub-sector of agriculture as well as critical sector of the economy. To stabilise prices, Operation Greens needs effective implementation. Implementation through the Agriculture Ministry can help create synergy in implementation.