Vegetables dearer: Onion at ₹40/kg, potato near ₹35/kg and tomato close to ₹80/kg. Why are food prices rising?

Onion prices spiked this week, driven by market shortages and reduced rabi harvests. Traders are hoarding supplies, expecting eased government regulations, Mint reported on Friday.

Potato prices have skyrocketed to ₹2,116/quintal from ₹1,076.14/quintal, according to Hindustan Times. Tomato prices have also risen due to rainfall-related transportation disruptions in Himachal Pradesh and other Himalayan states.

We examine why vegetable and food prices are expected to remain high until the next crop harvest in October.

Price Rise

As of July 4, the wholesale price of fair-average onions at the Lasalgaon market in Nashik, Maharashtra, has surged to ₹3,050 per quintal, a significant increase from ₹1,800 per quintal in mid-June, according to a report by Mint.

According to the Financial Times, the average retail price of onions in India jumped to ₹40 per kilogram as of July 4, a significant increase from ₹20 per kilogram last year. Moreover, prices skyrocketed by 30-50 per cent in just two weeks, from the end of May to the beginning of June, as reported by the Economic Times.

The Hindustan Times reported that the retail price of potatoes has leapt to ₹34.4/kg from ₹21.91/kg, and the retail price of tomatoes is at ₹54.42/kg, compared to ₹31.74/kg last month. An Economic Times report also noted that the price of tomatoes in some retail markets has reached as high as ₹80/kg.

Wholesale onion prices at markets:

- Maharashtra: Data from the Agriculture Ministry showed that onions are ₹3,050/quintal at Lasalgaon, ₹2,650-2,700/quintal in Ahmednagar, and ₹2,500-2,800/quintal in Pune. 

- Madhya Pradesh: The date showed that onions are ₹600-2,800/quintal at Dewas, Indore and Ujjain.

- Rajasthan: Onions ₹600-2,800/quintal at Jodhpur and Sikar.

Reasons for Price Rise

Farmers and spot traders in Nashik told Mint that wholesale prices were around ₹1,300-1,800 between May 20 and June 15, before rising after government agencies such as the National Agricultural Cooperative Marketing Federation (NAFED) and National Cooperative Consumers Federation (NCCF) began aggressively buying onions in June.

Notably, these agencies plan to purchase about 500,000 tonnes of rabi harvest onion this year directly from farmers to meet their buffer stock requirement. According to trade estimates, they have procured 300,000 tonnes so far. 

Sunil Nirgude, an onion grower based in Nashik district, told Mint that NAFED and NCCF purchases and lower supply due to rains have caused the price hike. He added that daily arrivals in Nashik have dropped to 2,000 tonnes, against 5,000-6,000 tonnes in May-June.

An official also told Mint that fewer trucks have been reported at the Azadpur wholesale market from Nashik. An onion trader said the supply may be lower because farmers are holding out for the annual price hike from September to October.

Further, the HT report noted that prices of fresh vegetables such as beans, cabbage, gourds, okra and turnips are likely to rise due to moderate crops due to heatwaves and low reservoir levels.

The ET report added that while prices usually rise after the monsoon due to transport issues and crop damage for tomato crops, this year, prices have begun rising early in June itself. It was noted that heatwave conditions have been detrimental to horticulture crops overall.

Prices to Remain High

The Financial Express report added that food prices are expected to remain elevated until the next crop harvest in October. It noted that as per the Agriculture Ministry projection, crop production for the July-June period of FY23-24 is 25.47 million tonnes (MT) — down 16 per cent YoY from 30.2 MT in FY22-23. Reason: Patchy rainfall in winter months.

Notably, the rabi crop harvested in April contributes 72-75 per cent of annual onion production and ensures year-round availability until November. Further, it added that the expected delay in Kharif crops by October-end is expected to push up prices.

The Centre's December last year ban on onion exports to control retail prices and ensure domestic availability led to protests by farmers, especially in the Nashik belt. The ban, which caused onion prices to crash, was eventually lifted in early May.