Demonetization Redux – Potato Market Mayhem
In November 2016, Uttar Pradesh’s potato farmers faced up to arguably their biggest crisis in a generation. A severe liquidity crunch had caused potatoes to lose nearly half their market value in just over a month, including a 15-day spell that wiped out a staggering ₹300 from the quintal price. By any measure, these farmers were at the receiving end of one of the most precipitous price crashes in modern Indian history. It was almost as if over 85% of the country’s high-denomination currency had been abruptly taken out of circulation, or something.
The cash shortage coincided with the pre-harvest season. This is typically when cold storages—where potatoes are held after the spring harvest to safeguard them from perishability—are cleared out to make space for the new harvest. Ordinarily, around one-fifth of the new crop would have gone on sale and the remaining four-fifths into storage, the latter to be gradually drip-fed into the market to roll with demand.
However, the cash shortage dissolved any semblance of structure and turned existing potato stocks into a buyer’s market in a matter of days. If you think back to this time, you’ll probably recall buying produce like potatoes with limited cash or on short-term credit. Now pause to consider that you only ever saw the tip of that iceberg.
Traced back through the supply chain, the lack of moving money eventually came to break the relationship between farmers and cold storage owners. Usually, farmers bring their four-fifths into storage and, depending on their arrangement, make the ₹220-odd per quintal storage payment at the time of collection. Storage owners hold the produce itself—traditionally the safest form of collateral—until collection.
Except this time, with perishable food already clogging circulation and with prices sinking fast, farmers with no cash in hand had nothing to pay storage owners with. Since it now cost them more to store and transport to the market than they could hope to recover by selling, potato farmers started abandoning huge parts of their harvest.
With cash resurfacing in the next few months and the new harvest on the way, there was an immediate, urgent need to take potatoes out of local circulation so prices could stabilize. Instead, wholesale buyers—depending on who you believe—knew of the supply glut and opted not to overbuy, continued to pay what they wanted claiming continuing cash problems or exploited storage owners desperate to rid themselves of the unclaimed 2016 crop, in order to hold down prices. With little intervention from a government going to state elections, panic selling brought potatoes out from storage and covered demand almost instantly.
Government intervention, when it did arrive, did so in April 2017 in the form of a 100,000-tonne government buyback of potato produce touted by the Yogi Adityanath government as historic. Executed right, it could’ve arrested the problem. Farmers thought it reasonable to expect the government to offer ₹1,000 per quintal. Depending on the yield, input and cultivation costs, bagging, storage and transport, UP’s potato farmers start to break even at ₹800-900. The average market price on November 8, 2016 was ₹1,137.
The government offered ₹487. And the government’s scrutineers, predictably hardwired to consider resale value, bought just 12,937 tonnes of the promised 100,000. They claimed it was a fair market price at the time, ignoring that the market still hadn’t recovered from the November 2016 price crash. They also claimed it worked since it brought a ₹100 increase in the market price; a temporary increase which still left farmers and storage owners absorbing massive losses. There was also ruthless turncoating involved. The BJP, as opposition, had rejected a ₹460 potato support price for 28,000-odd tonnes offered in West Bengal, but now, in government, were offering a ₹487 buyback price on less than half that amount in UP. In hindsight, there’s just no way around it: ₹487 was a cop-out.
And so it came to pass in July 2017 that UP farmers came to Delhi to give away potatoes for free to compel the government to reconsider its ‘historic’ buyback. In November 2017, storage owners began discarding potatoes on roadsides because no one was coming to claim them, to make room for fresh stocks that, very possibly, no one would reclaim. In early January, potatoes by the quintal were dumped outside the UP Assembly building and the Chief Minister’s residence, an incident which resulted five policemen being suspended, presumably for causing embarrassment to constitutional functionaries.
If you look up the credentials of this government on the issue, it’s easy to conclude that there’s an ongoing whirl of activity. The Centre has declared horticulture its TOP—Tomato, Onion, Potato—priority. (No, really.) They’ve been targeting, including through the Prime Minister at a UP investor summit this week, doubling farmer incomes by 2022. They’ve been considering a UP state proposal for a 200,000-tonne market intervention for potato farmers for 2018. The construction of more cold storages in Agra to better provide for future harvests has been green-flagged. There’s even been talk of transporting excess stock to other states to control prices.
The question really is how these will work. How is the ₹500 crore allocation under the Centre’s new Operation Greens going to deliver better prices? How different is this new UP state buyback going to be, compared with the utter abdication of responsibility that the 2017 version proved to be? How is more storage in Agra – which already has over 7% of India’s entire cold storage capacity – going to help the bottom line of farmers who can’t afford to rent the damn things in the first place? How is the existing freight subsidy offered to UP’s potato farmers – ₹50 per quintal upto 300 kilometres – going to be mesh with this new inter-state transport plan?
Look, there’s every chance that some tremendous progress by our farmers will keep the optics of the situation under control: potato production has doubled in the last 16 years, UP alone is forecast to generate a remarkable 16 million tonnes of potatoes this season, and the national output now generates more horticulture produce than foodgrain.
But there’s also no running away from the fact that the same system routinely penalizes potato farmers with six-figure debts, essentially for being extremely good at their jobs. And in a market where perishability and volatility are commonly known to be built into the very foundations, it’s astonishing to think that these farmers are still paying for mistakes they didn’t make over 15 months ago.
Data available on UP’s 150-odd monitored markets puts today’s average potato price at ₹501. That’s still, conservatively, around 37% below what these farmers need to recover to make ends meet. If facts haven’t already, there’s no incandescent or provocative language that will convey the seriousness of this. The reality is simple: another potato harvest will hit the market in a matter of days, there is every chance that the government isn’t adequately prepared for it, and it is entirely possible that there could be more potatoes on the streets in the near future.
And, in a country where we’re taught not to waste food because so many go to bed hungry, if images of streets littered with food doesn’t melt our social media bubbles, I can’t think of anything that will.