Pricing Vegetables

Venkat Subramanian is the Founder and Managing Director of Matchbox Solutions, a company which uses technology to solve critical issues in India.  Efarm, one such solution, uses technology to provide supply chain efficiency for procuring and delivering fruits and vegetables grown on rural farms.

While most of us were busy tracking cricket scores and gold prices, tomato prices have quietly shot up from about Rs 5/kg (US$ 0.10/kg) to Rs30/kg (US$ 0.60/kg) in Chennai’s retail market as of December 1. That’s a whopping 500%! If the stock market traders were watching this, they would have had a heart attack. But there wasn’t even a whisper in the media.

Ask your mom or wife, they’ll tell you more such stories of the see-saw in the farm produce segment lately. Though most have a passive knowledge of this, the scale of it hasn’t really hit hard. So here is a hard hitting, rude wake up call.

What is the average turnover per day of vegetables and fruits in India?

India’s DAILY turnover in vegetables and fruits is about Rs. 275 crores (US$ 59 million). To put some perspective, that is 3 times the average daily turnover of Tata Consultancy Services (one of India’s largest and oldest corporations)! Now that I have caught your attention, the typical ‘wastage’ per day, is around Rs. 130 crores (US$ 27 million). This is roughly the market capitalization of Cognizant (CTS) today.

In summary, it’s a LOT bigger than the Indian IT sector, which has always been the apple in the eye of everyone. And what further rubs salt in the wound is that agriculture has been always been run by uneducated, old, rural people with little advanced technologies. Whereas the Indian IT industry employs the cream of the world!

So, if tomato prices go up by say 10% a day, it is equivalent to….

• Rs. 10 crores (US$ 2.1 million) of increase in revenue
• That is 10 times the turnover of all of Reliance Fresh stores put together! Incidentally, Reliance Fresh doesn’t make a single rupee profit from its fresh vegetables sales! (Source: Their own balance sheet and financial statements)

Did we hear economists and industry analysts all along saying there is no money in agriculture and it is a slow growth industry?

Most economists are only reporting on inflation and deflation rates and still arguing over what goes into the wholesale price index. Well, economists don’t cook. Ask any housewife and she would tell you that tomatoes, onions, and potatoes are the “tri-murthis” of any Indian kitchen. That decides which way the price pendulum swings.

Here we unravel some of the street knowledge and best kept secrets of the Indian sabjee (vegetable) trail. Your comments are welcome.

How does one know what the correct market price is of any sabjee today?

The answer is “it depends.” Typically vegetables cost higher in the morning when they are fresh, and drop in value by evening. The ‘grade’ of the item also decides whether there is a premium – a broken, old, local carrot is priced differently than a fresh, bright, orange Ooty carrot! Price also varies with volume – if you buy 5 kgs instead of just ½ kg the same person would offer you a lesser rate.

Who decides the price of a vegetable?

At least we know who DOES NOT – the farmer. He is often the least involved or in control of this process. They usually take it to nearest mandi (local market), where the ‘agent’ comes up with a rate based on market trends.

So how does the agent know what to price and what market trends are?

This is where it all gets fuzzy. Each agent is networked with a few buyers in nearby areas, who are his key primary buyers. Nowadays, with the spread of mobile phones, SMS (text) messages flash back and forth in frenzy before any auction and most prices are predetermined.

There are several external factors which affect prices as well – fuel hikes, rain/natural calamities, political unrest, festival seasons – just about anything under the sky is an excuse to jack up the final rate.

Typical produce makes about 4-5 hops before it reaches your doorstep. The in-between players, the infamous ‘middlemen’ are the key manipulators of the system.

to be continued…