How to Blow Up Tomatoes in Indian Agriculture

When tomato prices are on fire, we might as well blow them up right?

Courtesy: Bing AI Generator when I prompted ideas about exploding tomatoes in the city

Such is the curse of the myopic “Never Ending Now” times we live in that we have forgotten how ahistorical we have become.

“We’re trapped in a Never-Ending Now — blind to our place in history, engulfed in the present moment, overwhelmed by the slightest breeze of chaos.” - David Perell

Nothing illustrates this more than the teacup storm brewing over tomato prices in Indian Agriculture. It has become the butt of jokes; Tomato heist is the talk of the town; Few farmers are making a killing and unsurprisingly many consumers are ranting.

Found at Mcdonalds’ New Delhi

In the timeless words of Ashok Desai, in his classic tome, “The Price of Onions”

“As people get older, they usually get richer. But even then, most never become so comfortable that they do not have to look at the right side of the menu. They can only insure themselves to the pain of doing without”

Complaining about tomatoes becoming onions and onions becoming tomatoes has been an annual ritual in this country. Numerous [2013] electrons [2017] of ink have been spilt to explain the reason behind tomato prices [2023]. This year’s highlight has been the “Tomato Grand Hackathon Challenge “ indicating the cluelessness of the powers that be to douse the prices on fire.

If you’ve been reading me in the interwebs, you would know that I care deeply about Indian Agriculture and its future in the nick of digital transformation.

So here is what I want to do: I want to hand over a two-step playbook to blow up tomatoes in Indian Agriculture. If tomato prices are on fire, we might as well blow them up, right?

Step 1: Misdiagnose the Root Cause of the Problem

Let’s be honest. It is tempting to blame production as the root cause behind tomato prices. When you are not habituated to understanding second-order effects in a complex domain like agriculture, this is very well understandable.

Marketers are getting ideas for marketing water savers to capitalise when tomatoes are blowing up.

Sure we can point out a laundry list of relatively known reasons - leaf curl virus, unseasonal floods in Andhra Pradesh, unseasonal rainfall in the month of May and relatively lesser known reasons - unregulated nurseries being breeding grounds of diseases, higher cost of production creating a vicious loop of creasing pesticide use, table varieties grown are unsuitable for processing - that point towards production.

But that doesn’t tell us why we continue to perpetuate the problem every alternate year [Fig 3 below] in a clockwork fashion in the months of June, September and November with increasing retailer margins [refer Fig 4 below] whether the prices go down to Rs. 5/kg or Rs. 160/kg. Does it?

If misdiagnosing the root cause is the first step to perpetuating a problem, what ensures that the problem repeats itself ad nauseam in the near foreseeable future?

Step 2: Subsidize Prices for Consumers Or Produce More Ignoring the Structural Nature of the POT (Potato-Onion-Tomato) Value Chain

No prizes for guessing how Indian Agriculture perpetuates the “Operation Successful Patient Dead” syndrome in the case of tomatoes and onions.

Whether you want to subsidize the prices of an inelastic fruit that was originally a gift of the Portuguese to India in the sixteenth century or increase production by finding the perfect climatic region for affordable cultivation, in doing what you are doing, what you are really doing is this: You are making sure that the symptoms of the problem are knee-jerkily addressed without addressing the root cause.

Why does tomato top the price volatility leaderboard in the holy triune (Potato-Onion-Tomato) of Indian cooking?

Unlike potato and onion, tomato is more perishable and cannot be stored for long. If you sufficiently observe the tango dance between the production and the prices of tomatoes, you would notice that it follows a cobweb model.

Prices went down in September’21. In the season that followed, farmers planted less. Given tomato is a short-duration crop, the supply shortage ensured that prices shoot up in the next three months.

Niranjan Rajyadaksha points out the history of the Cobweb Model

Understanding “miscalibrated expectations” and “coordination failure” is critical to understand why Indian Agriculture continues to be a poster girl for “supply-side economics” and perpetuates the bull-whip effect in agri-input and agri-output supply chain, despite well-intentioned farm law RFP recommendations.

Or to put it another way, a good barometer to gauge whether a commodity is no longer supply-side and is slowly becoming demand-driven is to ask a simple question: Has the cycle of rising and falling prices become less pronounced?

Courtesy: Twitter

Let’s peel this one layer deeper.

Why do fruits and vegetables suffer from extreme volatility despite market liberalisation and why is the supply chain biased in favour of colluding traders who profit from glut and shortage conditions?

Despite attempts to stabilise prices, there is no proper mechanism to do proper price discovery and Traders and Middlemen end up doing price discovery (based on APMC prices) without giving bargaining power to farmers - the rights of the farmer to place a “Reserve Price” /floor prices.

“The more perishable a product, the weaker the producer’s position from which to negotiate favourable terms of supply with the buyers of their goods, and the more vulnerable they are to take-it-or-leave-it terms from buyers or exploitative conduct.” - ACCC’s Agricultural Perishable goods report

In my upcoming podcast with Ravishankar Natarajan, we discuss this in detail. I owe special thanks to Ravishankar for sharing the open letter he wrote to the Competition Commission of India which explores this structural bias towards traders deeper.

When there are bargaining councils for tomatoes in the US, what is stopping us from creating bargaining power for farmers in India and giving them the right to set the floor prices based on the production costs?

Can we do any better than forcing them into a situation where they are not exploited at the vulnerable moment when they do a trade-off between take-it-or-leave-it terms from buyers and the perishability of their produce?

If you read Chapter II of the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020 (FPTC) from the now-repealed Farm Laws, you will find this clause.

Although Farm Laws were repealed, the underlying problem Farm Laws attempted to solve hasn’t been cracked yet. Can we develop nationwide price information that gives farmers the right to set floor prices? Can we develop decentralized price discovery mechanisms that don’t depend on APMC price signals for fruits and vegetables?

Or if these seem too idealistic to beat the entrenched politics of tomatoes and onions, can we at least set up prediction market price discovery mechanisms, as suggested by the authors Niranjan and Aditya in this article?

Live Mint Article

Albert Einstein famously once wrote that insanity is doing the same thing over and over and expecting different results. Can we first see the insanity we do every alternate year in tomato and onion supply chains?

On a sunny bright day as I write this, I hope we do:)

So, what do you think?

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