Monsoon Rain: Skyrocketing vegetable prices threaten surge in retail inflation

Farmers and traders in India predict that vegetable prices will remain elevated for an extended period due to disruptions caused by irregular monsoon rains, leading to delayed planting and damage to crops during their ripening stage.

As reported by Reuters, official data reveals that vegetable prices, accounting for 6% of the overall consumer price index (CPI), reached a seven-month peak in June, surging by 12% compared to the previous month.

"The monsoon is disrupting the vegetable supply chain. This year, we are going to witness higher vegetable prices for a prolonged period," said Anil Patil, a Mumbai-based trader.

Prices tend to decrease in August when the harvest reaches the market. However, this year, traders anticipate that costs will continue to stay high until October due to limited supplies, extending the period of elevated vegetable prices.

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The rise in prices of essential commodities like onions, beans, carrots, ginger, chillies, and tomatoes is not only causing dissatisfaction among voters ahead of upcoming state elections, but it is also expected to contribute to higher retail inflation. In fact, retail inflation is projected to reach a seven-month peak in July due to these costlier staples. This surge in inflation is likely to limit the Reserve Bank of India's (RBI) ability to lower interest rates during this year.

"Supply-side measures would be best suited to temper the rise in food prices. The RBI is expected to remain on pause till at least December 2023," said Gaura Sen Gupta, India economist at IDFC FIRST Bank.

Tomato prices have experienced an unprecedented surge, skyrocketing over 1,400% in the wholesale market over the past three months, reaching a record high of 140 rupees ($1.71) per kilogram. This steep increase has led to a reduction in purchases by both households and restaurants.

Farmers in Karnataka, the third-largest tomato-producing region in India, attribute the price surge to adverse factors such as inadequate rainfall, elevated temperatures, and a virus outbreak that affected the crop, Reuters reported.\

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Furthermore, the cultivation of tomatoes was reduced compared to the previous year due to a significant drop in prices during that period.

"Supplies are just 30% of normal as yields," said farmer Srinath Gowda, who manages 200 acres of farmland.

The monsoon has had an impact on various crops in different regions of India. States in the northern and western regions, which are significant vegetable producers, experienced rainfall that was as much as 90% above the average. On the other hand, some eastern and southern states received up to 47% less rainfall, leading to drier conditions.

An official from the met department highlighted that the weather department reported that certain states faced prolonged periods of no rain, only to be hit with heavy rainfall equivalent to a month's worth in just one week.

Also Read: New crop arrivals to bring down tomato prices: Govt

Reuters reported, The supply disruptions, and the resulting higher food prices, are expected to send retail inflation higher to 6.5% in July, its highest level this year and above the Reserve Bank of India's 2% to 6% target range, HSBC economists said in a recent note. Economists now expect the RBI to keep interest rates high into mid-2024.

“Supplies should start picking up in the next few weeks from crops planted in June, but that will not be sufficient to cool prices”, said Rajendra Suryawanshi, a vegetable trader in the western city of Pune.

"Meaningful correction in prices would begin from September, and in October, we could see prices falling to a normal level," Suryawanshi said.