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November 30, 2021

Indian vegetable prices collapse on oversupply

We chart the deflation and its drivers.
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In-house blogger
Guest blogger
Denys Liutyi
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All opinions expressed in this content are those of the contributor(s) and do not reflect the views of Macrobond Financial AB.
All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.
Editor:

Food prices may be rising in many emerging economies, but in India, the opposite is happening. 

While wholesale and consumer food prices rose in the run-up to the global pandemic, both have since dropped sharply. 

The fall was driven by the collapse in vegetable prices. The sector has been experiencing severe deflation since last year, falling to a record minus 19.4% in October 2021. 

Negative consumer price inflation was observed across every type of vegetable except lemons and green chilies, which represent just 4% of total vegetable crop production.  

Looking at wholesale, even rising prices for tomatoes, aubergines (brinjal) and peas – which together represent more than one third of total vegetable output – were unable to slow overall deflation. 

So, what’s behind these dramatic price falls in India’s vegetable sector? 

Before we go into the causes, we can first discount fertilizer prices, which are soaring amid a global natural gas shortage.

The most obvious cause of India’s vegetable price deflation is oversupply.  

Monthly vegetable exports may have climbed to about USD80 million but that accounts for just 2.9% of the country’s food exports. For an economy severely dependent on agriculture, such low volumes of trade could lead to a surplus within the domestic market. 

Meanwhile, although imports have risen since June, the volume is nowhere high enough to make a difference. 

Higher crop yields are also contributing to oversupply. Annual agricultural production grew 4.5% in the last quarter. 

While falling food prices may be good news for consumers, the industry will suffer in the longer term if the issue is not addressed. 

We can already see the impact on wages for farmers, which are sliding. 

To prevent further deflation in the sector, the Indian government will need to ramp up exports, stimulate domestic demand and continue limiting imports.

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