Peeling away the warehousing mess

India continues to grapple with warehousing seasonal vegetables like onions, potatoes and tomatoes, whose demand has become perennial. The demand-supply mismatch leads to wild swings in prices that provide false signals for subsequent crop seasons in the absence of effective price stabilisation mechanisms. Farmers also suffer due to the absence of alternative price discovery guideposts like futures contracts – as can be witnessed in the ongoing farmer agitations in Maharashtra over falling onion prices. They tend to make the least optimal choice – like letting their produce rot during a glut – because of a lack of access to market information. Vegetable farming is pockmarked with market failure at various levels, and state intervention is often delayed or inadequate to address them despite consistent recurrence.

Warehousing capacity in India is constrained by enforceability of contracts, as the latest crash in onion prices demonstrates. Cold store owners seek full payment upfront during a glut because they cannot be sure the farmer will show up to collect his stock as prices keep falling. Farmers, on their part, have no means to pay for storage if the market price falls below production costs. Price stabilisation efforts must reach all farmers so that they can sell a part of their crop at rates remunerative enough for them to pay for storage of the rest. This involves timely intervention using market intelligence. Onion prices have been trending downwards since the late kharif crop in November. But government procurement, income sops and transport subsidies have been made available since February. Moreover, the central agencies wheeled in for procurement do not have the capacity for intervention at this scale.

Solutions are to be found in strengthening market mechanisms around the production of perishables through stronger enforcement of farmer-warehouse transactions and improved information flows from futures trading. This should reduce the requirement for government intervention to clear markets. This apart, state capacity to intervene when needed has to be increased considerably to control horrific waste of perishable food in the country.