20. Understanding Supply-Price Relation in Indian Agriculture Markets: A case of Tomato, Onion, and Potato

Agriculture and allied sectors have historically been a key part of the Indian economy, serving as the largest employment sector and a key economic driver. In addressing the issue of subsistence- oriented farming in India, the focus of Indian policymakers was solely on improving yield, while issues related to price fluctuations were relegated. Rising yields and changing consumption patterns in a rapidly developing India have led to marketable surplus and price volatility. Alfred Marshall coined the law of supply-keeping other things constant, an increase in price leads to an increase in the supply of that commodity. Moreover, according to the Cobweb Model, in agricultural markets, short-run supply is highly inelastic, and prices of the previous season impact current supply instead of future expectations. This retrospective approach by farmers keeps them in a constant cycle of overproduction and underproduction, making market prices unstable. The Indian government has extended its support to stabilize prices through Minimum Support Prices (MSP) and distribution systems, which not only provided a cushion against extremely low-price realization by farmers but also created relatively stable market prices. However, this support is extended to only a few crops, mainly cereals and cash crops; other crops, like vegetables, have no such policy backing. This has resulted in significantly different price indices between cereal and vegetable crops. The coefficient variation in the Consumer Price Index of vegetable crops was over 26 percent, compared to 19 percent for cereal crops between January 2011 and July 2024. AgMarknet data for tomato, onion, and potato from the top five producing states for each crop point towards limited access to storage and minimal market control by farmers, while other players engage in temporal arbitrage based on price fluctuations. Data on arrivals and modal prices during harvest seasons show a negative relationship between quantity supplied and prices. This pattern suggests market players distort supply to arbitrage profits. Such unequal price-making power in markets places farmers lower in the value chains, which takes away the farmers' potential to secure a higher share of the final prices. Identifying this issue may help direct efforts toward placing farmers higher in the value chain. This study aims at understanding the supply patterns during harvest and lean seasons to unveil the price-making power of the participants.