Has demonetisation really driven down vegetable prices?

Every year, as winter sets in, tomatoes, which cannot survive in the cold and thus need to be harvested by November, become scarce, driving prices up. In some states, tomato prices double.

This year, the trend has reversed sharply. According to data gathered from government-run markets across the country, tomato prices in almost all states have crashed. Tomatoes are selling at an average of Rs 314 per quintal, or around Rs 3 per kg in Andhra Pradesh, and for Rs 4 and Rs 5 per kg in Karnataka and Maharashtra respectively.

Only Assam, Jharkhand and Nagaland buck this trend in the 24 states for which data is available.

The pattern was starkly different in 2015.

There is a similar, however, not as clear, trend in potatoes.

This year, between October and November, potato prices dropped in 21 of the 26 states for which data is available.

This time last year, while potato prices went down in three states mentioned in the chart above (there is no data for Chhattisgarh in 2015), this drop occurred in only seven out of 25 states. In the 18 remaining states, prices went up during this period.

Agricultural prices are determined by a host of complicated factors pushing demand and supply. For instance, export demand for tomatoes from Pakistan has dipped because of hostilities at the border, and there is a glut of supply of both tomatoes and potatoes as harvests come in across India.

This year, an additional factor might be demonetisation, which came into effect from midnight on November 8. This, however, can only be a partial explanation. Onions, for instance, can be stored longer than tomatoes. Their prices had crashed across the country at this time last year. In the corresponding period this year, prices have almost entirely gone up.

Nor can data indicate whether low prices of all perishable vegetables can be clearly attributed to demonetisation, even though it might be related. Prices of certain winter vegetables, such as cauliflower and carrot, tend to fall at this time of the year, when new harvests enter the market. This year, eight of 20 states saw vegetable prices drop by between 50% and 62%. Last year, only four of 22 states saw prices fall by that extent during this time.

Traders leave markets

Pimpalgaon in Maharashtra’s Nashik district is the country’s largest tomato market. Transactions here used to take place entirely in cash, but traders, who buy the stock to resell them in their areas, have been forced to shift to cheque payments.

“Traders from across the country come here to buy tomatoes,” said Diliprao Bankar, chairperson of the Agricultural Produce Market Committee in Pimpalgaon, who is also the state Assembly representative for Pimpalgaon from the Nationalist Congress Party. “Since the note ban, they have all gone back to their states without buying anything.”

Traders from Bihar, Uttar Pradesh and Punjab, he said, were particularly affected, as many of them are poor and do not have bank accounts from which they could have made cashless transactions. This has shrunk the pool of demand in Pimplagaon to only traders in Maharashtra, who tend to be better off and at least have accounts in banks.

Romesh Parihar, president of the Jammu Vegetable and Fruits Association, in Narwal, Jammu, said that demand for tomatoes and potatoes from local residents had dipped, leading to traders buying less.

“We have seen that demand is so low, we have to sell at whatever rate we get,” said Parihar. “I am only speaking for myself, but what can a businessman do with Rs 50,000 a week [a reference to the cash withdrawal limit]? That is why I am now doing futures payments online and by cheque.”

Farmers too have stopped coming to the markets.

“Tomato rates are so low that it is not even worth putting them in storage, and fewer farmers are coming to the market,” said Pimpalgaon’s Bankar. “Even if we have bank accounts and money in them [in western Maharashtra], the banks have nothing. Cheque payments are of no use to farmers.”

A similar situation is playing out in Karnataka, where The Hindu reported that farmers do not have cash in hand to take the tomato crop to the market. Nor do traders have cash to pay them. Meanwhile in Vijayawada, Andhra Pradesh, The New Indian Express reported that tomato sales are down to 20% of the business normally conducted at this time of the year.

No exports and local gluts

In the case of tomatoes, even as domestic demand is suppressed, international demand has also not bolstered tomato rates. Pakistan is a significant importer of tomatoes from India and prevailing border tensions mean that tomatoes remain in local markets.

Both Bankar and K Subba Raghava Raju of the Madanapalle Agricultural Produce Market Committee in Andhra Pradesh, mentioned this.

“Production is high across the country at this time, but almost all export has stopped,” said Raju. In Madanapalle, he claimed, cash transactions were continuing with the new denominations, with farmers getting Rs 2,000 and Rs 500 notes.

An officer with the Agricultural Produce Market Committee at Pipli in Haryana pointed to the glut in potatoes at this time of the year.

“Last year too prices went down in Haryana at this time,” the officer said. “Once farmers move to sugarcane next month, supply will go down again. Until the potatoes of UP [Uttar Pradesh] get sold, rates will not go up.”