By P Mohan Chandran
Ever stopped to wonder what tomatoes have to do with the cost of onions and potatoes in your shopping basket? Does the rise of a single scarlet vegetable sound alarms for its earthy companions? Is there more to the price tags at your local grocery store than meets the eye? As it turns out, there's an intriguing subplot unfolding in our daily commerce, where the simple act of pricing groceries becomes a complex narrative of interdependence and ripple effects.
A recent study by the Reserve Bank of India (RBI)'s Development Research Group (DRG) unearths this intriguing storyline. The skyrocketing price of tomatoes, reaching well over Rs. 100 per kilogram, isn't just a standalone chapter. This increase is, in fact, the catalyst for an escalating cost saga that encompasses onions and potatoes too.
The study, eloquently titled 'Anatomy of Price Volatility Transmission in Indian Vegetables Market,' sheds light on the phenomenon known as 'horizontal volatility transmission.' This transmission connects the fate of these three vegetable staples, making them prone to simultaneous price surges. Factors like adverse weather, hoarding, pest attacks, post-harvest losses, and increasing input costs fuel this chain reaction.
But why are these vegetables so intimately intertwined? Some degree of substitutability and complementarity between these three edibles facilitates this transmission. The data analyzed, spanning from January 3, 2011, to March 31, 2021, provides empirical evidence for this intricate dance of vegetable prices.
A tremor in tomato prices sends shockwaves across onion and potato rates, affecting both retail and wholesale markets. This unsettling link is not just a matter of grocery bills but has ramifications on the overall inflation scenario. It adds fuel to the already raging fire that the RBI is desperately trying to douse to achieve its retail inflation target of 4 percent.
More than just being the culinary staples, tomato, onion, and potato – or TOP – play a critical role in the country's Consumer Price Index (CPI). Despite occupying a small space in the CPI basket, TOP's volatility significantly drives headline inflation. It's this trifecta of vegetables, owing to their perishability, that witnesses the most volatility.
The study makes a clarion call for effective supply management measures by the government. Strategies such as bolstering supply chains, imposing stockholding limits, enhancing cold storage facilities, and reducing post-harvest losses could ensure stable prices and availability.
But as you stand in the grocery aisle, witnessing the ripple effect of tomato prices on your humble onion and potato, ask yourself: Is it just a supply-demand game? Or are we watching a microcosm of our interdependent, complex economic system play out in our shopping baskets? Can the volatility of just three vegetables potentially capsize the economic boat? And finally, what actions can we, as conscious consumers, take to mitigate this ripple effect and contribute to a more stable market? These are the questions to simmer over as you prepare your next meal.
Which of the following do you think is the reason for the recent high prices of tomatoes, potatoes & onions?
1. It is due to demand-supply mismatch
2. It is due to skewed agricultural policies.
© 2023. P Mohan Chandran. All Rights Reserved.
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