Not More Than 37 Rupees from the 100 You Spend

Newsreel Asia Insight #328
October 8, 2024

When you buy vegetables from the market, have you ever wondered how much of the money you spend actually ends up in the pockets of the farmers who grow them? A study by the Reserve Bank of India (RBI) suggests that only about one-third of the money you spend on tomatoes, onions and potatoes, commonly referred to as TOP, ends up with the farmers.

The journey of vegetables from farm to consumer involves several stages, including growing, harvesting, transporting, selling to wholesalers, storing and finally reaching the retailer. Each stage adds to the cost.

The RBI study found that farmers receive about 33% of the rupee you pay for tomatoes, 36% for onions and 37% for potatoes. This means that when you pay 100 rupees for these vegetables, only about 33 to 37 rupees go to the person who grew them.

“The rest is apportioned by the wholesalers and retailers – unlike other sectors like dairy, where farmers are getting around 70 per cent of the final price,” states the study. Middlemen, transportation costs, storage fees and retailer markups all play significant roles in inflating the price from the farm gate to your shopping basket.

Given that India is a leading producer of these vegetables, the number of affected farmers must be in millions. After all, India ranks second globally in the production of tomatoes and potatoes, contributing 11% and 15% to the world production respectively, according to the study, which notes that India surpassed China in 2021 to become the largest producer of onions worldwide.

The economic condition of farmers across the country, not just those growing TOP vegetables, is concerning. According to the latest “Situation Assessment of Agricultural Households,” 5% of farming families have an income of zero or even negative, indicating they earn no money or incur losses from their farming activities. Moreover, data reveals that 90% of these families earn less than 12,017 rupees per month from their farms, which means the majority of farmers live below this income threshold.

The RBI study suggests several policy measures.

One of those measures is improving transparency in how vegetables are sold to ensure farmers get a better price for their produce. This will reduce the layers of middlemen who traditionally take a cut of the profits. With more transparent market practices, farmers gain direct access to pricing information, allowing them to make informed decisions about when and where to sell their produce to maximise their returns. Transparency also facilitates fairer negotiations with buyers and reduces exploitation, as everyone involved has clear and accurate data on market conditions.

Therefore, integrating national agricultural markets through an online platform, like the existing e-NAM (National Agriculture Market) platform, could help reduce inefficiencies and improve price transparency. However, although e-NAM was launched in 2016, it currently includes only about 20% of the country’s mandis. There is a need to accelerate this integration to cover more mandis and enhance its effectiveness.

The central and state governments also need to support farmer collectives, which are groups where farmers, especially the smaller ones with less land and resources, come together to support each other. These collectives help farmers work together to buy things they all need, like seeds and tools, at lower prices because they buy in bulk. They also help farmers have a stronger voice when negotiating prices to sell their crops, ensuring they get fairer payments. This way, even the smaller farmers can have the same advantages as the big ones, making it easier for them to make a good living from their farms.

The study also suggests reintroducing futures trading for potatoes and onions to provide a mechanism for better price discovery and risk management, potentially stabilising prices. Futures trading is a way for farmers to agree on selling their crops at a future date at a price they set now. By locking in prices ahead of time, farmers can protect themselves against sudden drops in market prices, while buyers can avoid sudden increases. This could help make the prices of these vegetables more stable over time, benefiting everyone in the market.