3. Tomato, Onion and Potato (TOP) Value Chains

India exported 268 thousand tonnes of tomato in 2016–17, which declined to 55.8 thousand tonnes in 2017–18, and increased to 105 thousand tonnes in 2018–19. The decline in 2017–18 was due to import bans imposed by Pakistan, the largest importer of Indian tomatoes, as a result of political tensions. The constant rift between the two countries is reflected in the volatile agricultural trade. In TE 2016–17, Pakistan imported 75% of total tomato exports from India, which declined to 46% in TE 2018–19, followed by the UAE at 21%, Bangladesh at 14% and Nepal at 12%. Between 2014–15 and 2018–19, Pakistan imported tomatoes worth USD 29.7 million, i.e, 55% of the tomato exports from India (Fig. 3.3).

India exported 0.17 million tonnes of tomatoes (fresh and fresh equivalent to paste), which is less than 1% of 20 million tonnes of tomatoes produced in TE 2018–19 (Fig. 3.4). India accounts for about 2% of global tomato exports, occupying 13th position in the world, and is a net exporter of the processed tomatoes (Fig. 3.4). China is the largest exporter of tomato paste in the world, with a 28% share in global exports (TE 2017), followed by Italy (21%) and the USA (13%). The major tomato juice exporters are Germany (15%), Italy (14%) and the USA (11%).

India’s minimal presence in tomato paste export market can be attributed to higher input costs. China processes tomato paste at much cheaper rates, making it the global leader. Even Indian ketchup manufacturers find it cheaper to import Chinese tomato paste rather than procure from India.

Onions from India have a huge global demand because of its high pungency and year-round availability. India’s onion exports have increased considerably after it was canalised through NAFED and 12 other bodies. India exported 2.42 million tonnes of fresh onions in 2018–19, which was almost 45% more than what India exported in 2017–18 (1.68 million tonnes). However, the trade policy in India is haphazard and makes India’s exports very volatile. With frequent imposition of minimum export prices (MEP) or complete export bans, India is losing its credibility in the global onion export market. This gap in exports from India encourages other nations like Pakistan to increase its exports. The Netherlands, despite not being a major producer, has emerged as a top exporter on the back of their efficient storage and packaging solutions.

The varieties which are popular for exports include the NHRDF developed Agrifound Dark Red and Agrifound Light Red (big onion), Agrifound Rose (small onion), and Agrifound Red (multiplier onion) (NHRDF). Apart from these, Pusa Ratnar, Pusa Red, and Pusa White Round are also popular. The Rose variety of Krishnapuram in Karnataka is premium quality and attracts a higher price than the medium-sized onions from Maharashtra. While India is able to export much of its onions to its neighbours and Gulf countries (Fig. 3.5), exports to European countries is at a nascent stage. European countries prefer the yellow varieties of onion, which are large in size like Tana F1, Arad-H, Suprex, Granex 55, HA 60 and Granex 429. These were developed especially to cater to export markets (APEDA).

According to APEDA, modern pack-houses for sorting, grading and packing of quality onions are already available at major production centres. Guidelines for the maximum permitted residue levels (MRLs) for identified pesticides, grade designation, and quality development are also in place.

Even for dehydrated onions, India is among the largest exporters in the world along with Malaysia with 27% share each, followed by the USA (12%) and Egypt (4%) (Fig. 3.6). These top four countries account for around 70% of the world’s total dried/dehydrated onion export. Dried onion or dehydrated onion (ITC HS Code: 7122000 Onions, Dried, Whole/Cut/Sliced/Broken/In Powder but Not Further Prepared) is in the form of dried flakes, slices, granules or powder. India has the largest hub of dehydration units for onions in the world. These products are generally exported to Europe, Russia, Africa, and the Middle East countries.

India, despite being the second-largest producer of potatoes in the world, is not a big player in potato exports, and accounts for only 2.6% of global potato exports. The corresponding figures for Pakistan and China are 4.5% and 4.1%, respectively. However, India’s potato exports have increased over time. In value terms, India’s potato exports have increased from USD 2.4 million in 2002–03 to USD 63.4 million in 2018–19, peaking at USD 138 million in 2014–15. In volume terms, India’s exports were only 0.37 million tonnes in TE 2018–19, a minuscule proportion of India’s production of over 53 million tonnes.

Potato from India is largely exported to neighbouring countries with nearly 76% going to Nepal (Fig. 3.7). Sri Lanka, Oman, Malaysia, Mauritius, Kuwait, Maldives, Indonesia, and UAE are other important destinations. Pakistan, which imported around 129,000 MT in 2014–15, has not imported any potatoes since then.

As far as imports are concerned, processing companies import tissue culture since bulk imports of potato are banned. This is one way in which high yielding varieties can be made available to Indian farmers. India exports the Kufri Sindhuri, Kufri Jyoti and Kufri Chandramukhi varieties of table potatoes. While the first two are in great demand in Nepal and Bangladesh, the third one is very popular in Afghanistan (Rana 2017).

The Netherlands and Germany together control 54% of the global exports of potato flour, meal, powder, flakes, granules, and pellets.¹ In this category, India’s share is only 2% of global exports. At a more disaggregated level, India is the third-largest exporter of potato flour, meal, and powder. However, it needs to be pointed out that India is a net importer of potato starch² because of the virtual non-existence of the starch making industry in India. China and the European Union are India’s competitors in export of processed potato.

To compute the nominal protection coefficients (NPCs) for TOP, two price series were taken: domestic price series and international reference price series. Domestic prices have been taken as the weighted average of prices prevailing during the harvesting months of the largest producing states that account for around 60% of national output. For international reference prices, the unit value of exports has been used. International prices include port handling charges but are net of domestic transportation costs, trading, and marketing margins and costs. This indicates the import parity price or the price at which India could have imported. This was done for the importable hypothesis model. For the exportable hypothesis model, port handling charges, domestic transportation, trading, and marketing margins were subtracted from the international price. Prices have also been adjusted for quality. These charges have been estimated as a percentage of the wholesale price based on interactions with stakeholders during the field visit.

For tomatoes, wholesale prices prevailing in Andhra Pradesh, Madhya Pradesh, Karnataka, Gujarat, and Odisha were taken. The computed values of NPC along with the export values for tomato have been shown in Fig. 3.8. The results show that tomato has been always competitive in the international market, yet the export to production ratio has been always low in India. India has not fully utilised its potential of exporting tomato like it has done for onion. There have been huge fluctuations in tomato exports from India, which is the result of import bans imposed on Indian tomatoes by our neighbouring countries, especially Pakistan, due to political reasons. This leads to undue pressure on tomato traders and farmers who are unable to sell their produce when a glut coincides with bans imposed by importing countries. Despite tomatoes being available throughout the year, exports have not picked up. Figure 3.8 also shows how India reached its peak tomato exports during 2013–14, when it exported 4 lakh tonnes of tomato.

Market Price Differential (MPD), which is the difference between domestic and international prices, has been negative for the entire period of the study (2002–03 to 2018–19), implying that trade policy has been pro-consumer (Fig. 3.9).

For onion, we have compiled the average wholesale prices from Agmarknet for the top 3 producing states, namely Maharashtra, Madhya Pradesh and Karnataka, which accounts for around 60% of the total onion production in India. The average price for a financial year is the average of the prices prevailing in the harvesting months of the crop. For Maharashtra and Madhya Pradesh, April and May prices were taken, and for Karnataka, July to November (kharif season harvest months) prices were taken. As international prices for onion were unavailable, we used the unit value of onion exports from India as a proxy for FOB prices. The nominal protection coefficient calculated for onions is consistently less than 1, indicating the export competitiveness of onions from India (Fig. 3.10).

Figure 3.11 shows the nominal rates of protection (NRP), indicating a consumer bias in trade policies. Market price differential (MPD) for onion is negative for all years studied, which indicates a pro-consumer bias in trade policy (Fig. 3.12). This is evident from the fact that the government imposes minimum export price and other trade restrictions as soon as prices shoot up.

Due to fluctuations in domestic price, and market arrivals of onions, the Indian government resorts to measures aimed at reducing prices to safeguard the interests of consumers. Hence, Indian trade policy for onion is very unstable. It can range from a complete ban on exports or increasing the minimum export price (MEP) to freeing exports of onion and reducing import taxes. For example, onion exports were prohibited from December 2010 to February 2011 and then, briefly again in September 2011.

Minimum export prices (MEP) have been imposed on onions several times ranging from USD 0 to USD 1150 per MT for the normal variety of onion (Fig. 3.13). Since December 2015, onion exports were free. MEP was again imposed on November 23, 2017, at USD 850 per MT. In the first week of February 2018, MEP was removed as onion prices started coming down. There were a number of policy measures introduced in 2019 by the government to curb retail prices, which crossed INR 40/kg in mid-September and further to INR 50–60/kg. After imposing an MEP of USD 850/MT on September 13, 2019, the government imposed stocking limits on traders and wholesalers. However, when these measures did not cool prices, it banned all varieties of onions from being exported. This frequent imposition and removal of MEP on onions hamper the credibility of India as an onion exporter as high MEP discourages domestic exporting firms from selling their produce overseas. Importing nations resort to buying onions from elsewhere like Pakistan. The imposition of MEP not only destroys India’s credibility as an exporter, it also deprives farmers of higher prices for their produce. A datewise timeline of the imposition of MEP on onions has been shown in Fig. 3.13. The red line shows the MEP imposed on the premium Rose and Krishnapuram varieties of onions from Bangalore, which was always higher than the common variety of onion, before April 2012. Since August 2013, a common MEP was imposed on all varieties of onion.

Another policy concern was the inclusion of onions as an essential commodity under the Essential Commodities Act (ECA) in 2014, which empowered states to take up de-hoarding measures and monitor prices regularly. It was under ECA that the stocking limits were imposed in September 2019 on wholesalers and retailers. However, it proved to be ineffective in controlling the prices, which went beyond INR 100/kg mark in several cities in December-2019. By enacting the amended Essential Commodities Act³ in September 2020, the government paved the way for deregulation of onion prices. Revoking ECA will encourage private investment in storage, thus reducing wastages and further helping farmers to reap benefits of storing their produce during glut and selling off later in the lean season. The benefits of some schemes like the Merchandise Exports from India Scheme (MEIS) was extended to onion in August 2016 to encourage farmers to export in case of low domestic onion prices. This is done by giving subsidy to exporters, when domestic prices are low. However, when there is a shortage of onion in the domestic market, India also imports onions from countries like Egypt, Pakistan, and Iran to meet the shortage.

For potatoes, the domestic wholesale price has been taken as the weighted average of wholesale prices prevailing in Uttar Pradesh, West Bengal, Gujarat and Madhya Pradesh. These four states accounted for around 68.5% of total potato production during TE 2017–18. Since potato prices in Bihar are not readily available because of the abolition of APMC Act, their prices have not been included. Wholesale prices for only the harvesting months of rabi crop (December to March)⁴ have been considered. The export unit value of potato is taken to be the international reference price, adjusted for domestic transportation costs, marketing margins, and port handling charges. These charges have been estimated as a percentage of the wholesale price based on interactions with various stakeholders, during field visits. NPC values for both exportable and importable hypotheses have remained below 1, indicating potatoes have been generally export competing, except three years (Fig. 3.14).

Potatoes were import competing in 2005–06, 2007–08 and 2013–14. The export competitiveness of potatoes increased after 2013–14, leading to a significant jump in potato exports.

Potato has been also subject to a haphazard export policy. As potato forms an important part of the average Indian’s consumption basket, high minimum export prices (MEPs) have been imposed occasionally to prevent the domestic prices of potato from shooting up. This is a clear indication of a consumer bias in trade policy (Saini and Gulati 2017). In July 2016, MEP of USD 360 per tonne was imposed on potato export.⁵ This policy was changed in December 2016, when the export of potato was permitted without any MEP and prevails till date.⁶ This perhaps explains why despite being the second-largest producer of potato, India held only 2.4% share in global potato exports in TE 2016.

Market price differential (MPD), which measures the difference between domestic price and international reference price, has been negative in recent years, indicating a pro-consumer bias in trade policy (Fig. 3.15). This is reflected in the imposition of MEPs in fear of rising consumer prices in years when there is a shortage and removing the same in years of surplus production. MEP on potatoes was imposed in June 2014 and removed in February 2015. In July 2016, MEP of USD 360 per tonne was imposed again in fear of increase in domestic price, which lasted until December 2016.

Of the three commodities, the highest variability in NPC measured using coefficient of variation (CV) was observed for potato at 30%, followed by tomato at 22%. For onion, coefficient of variation was 15%. This implies that there is a higher degree of variation in domestic and international prices for potato and tomato, while onion prices have lesser degree of variation.

A farmer has a number of options for selling tomatoes. For example, in Karnataka, a farmer has the following options: the traditional wholesale market, HOPCOMS (Horticultural Producers’ Co-operative Marketing and Processing Society Ltd), SAFAL Market, Namdhari Fresh, etc. However, a majority of the farmers still sell their produce through the traditional channel i.e., wholesale market. A recent study by the Indian Institute of Horticultural Research (IIHR) states that 60% of the produce is marketed through the traditional value chain and the rest goes through the other chains of HOPCOMS and SAFAL.

To estimate the farmer’s share in consumer rupee, we have used tomato wholesale prices from major mandis supplying to Delhi—Pimpalgaon (Maharashtra), Kolar (Karnataka) and Solan (Himachal) as well as Gujarat, Haryana and Rajasthan adjusted for their harvesting months and seasonality and taking three-year average of TE 2018–19 (details in Table 3.2). The mandi fees and official commission charges at Kolar, one of the largest tomato mandis in the country, have been used. While these charges are supposed to be borne by traders, the burden ultimately falls on farmers who get a price net of these charges. Data gathered during field visit suggests that the commission fees earned by commission agents and traders are much higher than what is officially prescribed by the APMC. The official commission fee in Kolar mandi including rent for crates and annual licence fee charged by APMC is about 8%. The transportation cost from Kolar to Delhi is about INR 1000/q. Using this, we have calculated transportation cost on a pro rata basis for other mandis. Subtracting the price received by farmers and total cost borne by traders from the wholesale price at Delhi’s Azadpur mandi, we get an approximate value for trader’s margin. The retail price for Delhi has been taken from the Department of Consumer Affairs. All other data on costs have been gathered during field visits. Figure 3.19 shows the markups for the tomato value chain from major producing regions to Delhi.

To estimate farmer’s share in consumer rupee for onions, we have considered Delhi, which is one of the largest consumption markets for onions. Depending on the season, there is a lot of volatility in the returns and margins of each stakeholder in the value chain. Therefore, we have taken the season-wise weighted average of prices for three years (2016–17 to 2018–19) to calculate price received by farmer. The weights are based on the share of onion arrival in Azadpur mandi from major mandis in Maharashtra (Lasalgaon), Madhya Pradesh (Indore), Gujarat (Mahuva) and Rajasthan (Jodhpur). Retail prices have been taken from Price Monitoring Cell, Department of Consumer Affairs (DoCA), and not from National Horticultural Board, which does not have a standard method of collecting retail prices. As Delhi’s wholesale price is the average wholesale price of onions of all qualities arriving from markets across India, we have taken the average of the maximum prices reported on Agmarknet for Delhi, Maharashtra and MP, which cater to more than 60% of Delhi’s demand for onions.

For trader’s costs, we have relied on data gathered during our field visit to Lasalgaon, the largest onion wholesale mandi. According to information provided by the Lasalgaon APMC mandi, traders need to pay 1% mandi fees to the APMC, which is the main source of income for the mandi. The official rate prescribed by the mandi for commission charges paid by onion traders to commission agents is 4%. The other official charges prescribed by the mandi are as follows:

Trader’s margins are Delhi wholesale prices less Lasalgaon wholesale prices and trader’s cost.

Based on the prices, costs and margins given above, the farmer’s share of the consumer’s rupee works out to 29.1% and for retailer’s it is 30.6% (Table 3.3). During a glut, often farmers are not able to cover their cost of production. Figure 3.20 shows the mark ups for the onion value chain from major producing regions to Delhi. The costs and margins of other stakeholders are based on interactions with traders, commission agents and wholesalers. Hence, it is likely that these may not reflect the true margins, due to reporting biases.

Agra is the largest potato producing district in India. Delhi as well as the southern states are important markets for potatoes from Agra. Traders in Agra cater to many markets in Maharashtra and cities like Hyderabad, Chennai, Bengaluru, etc. and so on. Arrivals of potatoes are the highest during the harvesting months of December to March, after which potatoes from cold storages arrive in the market. Usually, when a trader buys potatoes from the cold storage, there can be two sorts of arrangements. One, the trader buys at his own risk, in which case the cost of transporting it to the relevant market is borne by him. In this case, it is possible for the trader to make a profit or a loss, depending on the price that he is able to secure. In the second case, the trader just facilitates the transaction; the wholesalers from other states place the order with the trader, who gets a guaranteed commission per quintal. However, during periods of glut, traders also work on fixed commission, because of low demand at the consumption centres.

In Delhi, potatoes mainly arrive from Agra and Punjab. Fresh potatoes from Punjab start arriving in Delhi markets in the second half of November and continue to arrive until February. Fresh potatoes from Agra arrive between December and March, after which potatoes from cold storages are supplied. To estimate the farmer’s share in the consumer rupee, the weighted average (using arrival share in Delhi) wholesale prices during the harvesting months from Agra and Jalandhar have been used for TE 2018–19. Wholesale prices for Delhi have been taken from Agmarknet. Retail prices are a simple average of the prices prevailing in Delhi during the harvesting months of the rabi crop (November to March) for 2016–17 to 2018–19, taken from Price Monitoring Cell, Department of Consumer Affairs (Details in Table 3.4).

The potato value chain in Agra is an example of a highly inefficient value chain, where the farmer gets a measly 26.6% of the consumers’ rupee and the retailer appropriates the maximum share (Fig. 3.21). The retailer’s costs and margins together account for a massive 47.8% of the consumer’s rupee. Not only does the farmer not get a fair share of the consumer price, he does not even cover his overhead cost, which includes transportation and labour costs. Currently, even the best price received by the farmer is so low that he is not able to recover the costs of storage. The idea behind storage is to enable the farmer to take advantage of future increase in price.

To estimate the price spread between the wholesale and retail price, we have estimated the farmer’s share in the consumer’s rupee for major metro cities (Table 3.5). It is found that potato prices are the highest in Mumbai, followed by Chennai and the cheapest in Delhi.

Nalanda is the largest potato producing district of the third largest potato producing state of Bihar. Potatoes produced in Nalanda (mainly Kufri Pukhraj variety) are consumed mostly in Bihar and Jharkhand. Farmers take a sample of their produce to the mandi (although Bihar repealed APMC law in 2006) where traders quote a price and later purchase the produce from the farmers’ field. Such marketing practices include the presence of commission agents who charge fees from both farmers as well as traders.

Based on figures obtained from field visits and Patna wholesale and retail prices from DoCA, the mark-up of each stakeholder in the value chain has been estimated. There are two scenarios for potato sale: At the time of harvest (Feb 2018) and at cold stores (April 2018). As time-series data for potato prices in Bihar is not readily available, we have used Nalanda wholesale prices from information gathered during field visits. For retail prices, we used DoCA retail prices for Patna. Table 3.6 shows that Nalanda potato farmers get (40–42)% of the consumer’s rupee. However, given the cost of cultivation of INR 480 per quintal (DES), farmers tend to make a loss, especially small and marginal farmers who sell their produce immediately after harvest due to lack of storage facilities. Despite loss in potato cultivation, farmers reported covering the losses through multi-cropping with other vegetables.

The above analysis for the traditional value chain model shows that TOP farmers get anything from 26.6% to 42.2% on an average. The inefficiency of the traditional marketing channels makes it imperative to have integrated, demand-driven value chains and alternate marketing models that provide higher returns to farmers. The central government announced APMC reforms on many occasions in the past (Model APMC Act 2003, APLM Act 2017). However, not all states have ushered in these reforms. The latest reform undertaken by the government is the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) or FPTC Act enacted by the Parliament in September 2020.⁷ The Act ensures freedom of choice for sale and purchase of farmer’s produce and transparent and barrier-free inter-state and intra-state trading, bypassing the mandi system. This would also mean that no market fees or cess would be charged on farmer or traders who are not using mandi services. These reforms in APMC will ensure that farmers are able to save the costs of marketing through APMC mandis as well as allow large buyers to directly purchase from farmers and FPOs, without going through the mandi system.

In this section, we discuss a few models of organised value chain for tomatoes, onions and potatoes such as Chittoor tomato pulping industries, Mahuva dehydration industries, Jain Irrigation onion dehydration model, McCain Foods Limited and SAFAL fruits and vegetables. The idea behind studying these value chains is to compare them with traditional value chain models and ascertain which models are more efficient and fetches better returns for the farmer.

Even though there has been an improvement in the production of tomatoes due to introduction of hybrid seeds, marketing and processing of tomatoes, efforts to contain volatility in tomato prices have not been successful. Almost entire production of tomatoes in India is supply and not demand-oriented leading to large fluctuation in prices. If a particular year was profitable for tomato cultivation, then a majority of farmers cultivate tomatoes the following year, resulting in glut. This is due to the absence of real-time season-wise data on acreage, which may be used to predict price movements. If farmers have real-time data and can be advised on the prospects of a particular crop, they will have a better idea of what to cultivate based on market demand conditions. The decision to cultivate a particular crop should be demand and market-driven and not supply-driven.

Kolar is the second-largest tomato mandi in India after Nashik and here tomatoes are grown in all the three seasons (rabi, kharif and summer (early kharif)). This makes it an important mandi for tomatoes in India which supplies tomatoes to Andhra Pradesh, Tamil Nadu, Delhi and all the way to Bangladesh and Pakistan. Data on cost of tomato production is taken from Indian Institute of Horticulture Research, Bengaluru. Price data is the season-wise weighted average for TE 2017–18 for the harvesting months. Benefit-cost ratio estimated shows that tomato cultivation is profitable in Karnataka as returns are much higher than costs (Table 3.9).

According to farmers in Lasalgaon, cultivation of onions is profitable in some years, and unprofitable in others. This is because prices are very volatile and the farmer has no idea what price he will receive before the auction. For this reason, a farmer also grows corn, soybean and grapes to reduce the risk involved in onion cultivation. According to farmers, their average cost comes out to INR 700–800 per quintal if only labour, fertiliser, seed, transplanting and harvesting costs are included. However, if electricity and self-labour are also included, then the cost rises to INR 1000–1100 per quintal. As per cost of cultivation data provided by NHRDF, the average cost of cultivating a quintal of kharif onion in Maharashtra is INR 844 per quintal and INR 793 per quintal for rabi onions. The detailed break up of cost of production for both kharif and rabi onions in Maharashtra is given in Annexure 3.3.

Apart from the cost of production, a farmer incurs labour and transportation charges for bringing the produce to the mandi. Unlike potato farmers, onions farmers incur no charges for storage as most of them have their own storage structures. Transportation charges for bringing the produce to the market vary between INR 40 per quintal and INR 60 per quintal, depending on the distance from the farm to the mandi. Prices in the Lasalgaon market are very volatile. During rabi 2017–18 (April–May), the average price in Lasalgaon was INR 472 per quintal. During kharif 2017–18, farmers received an average price of INR 2566 per quintal and during late kharif, the price received by Lasalgaon farmers was INR 1762 per quintal. Hence, to estimate farmer’s share, we have calculated season-wise average prices and costs for TE 2017–18. The farmers earn higher profits during the kharif season during the months of October to December, when the stored rabi season is out of stock and fresh kharif crops arrive in the market.

It is clear from Table 3.10 that the returns to farmers are very volatile and there are high chances of negative returns during the rabi harvest period, when the market is flooded with fresh arrivals. The opposite happens when the kharif onions start arriving in the market. However, due to the inefficiencies present in the traditional onion marketing channel, and the cost and margins of various stakeholders, the benefit of the increase in kharif onion prices may not really translate to higher incomes for farmers.

Mahuva, a small coastal town in Bhavnagar district, around 265 km from Ahmedabad is the largest onion dehydration hub in India. Mahuva has around 130 dehydration plants (110 in Mahuva and the rest around Mahuva) engaged in processing onions, garlic and other vegetables. However, onion dehydration is the main money-spinner for these plants as it accounts for 90% of the revenue. Mahuva is also the largest white onion growing region in India.

Since the middle of 2000s, Mahuva became the hub of dehydration industry in India. The industry flourished in Mahuva because of support from the state government in terms of their industrial policy, easier process for setting up industries and subsidies and grants provided by the state government to agro-based industries in Gujarat.

The minimum capacity is 6 tonnes per day per plant in Mahuva and the average ranges between 7 and 8 tonnes per day. This capacity is way below the capacity of Jain irrigation (JISL), which is the largest dehydration plant in India. The total capacity of all Mahuva units is around 1.25 lakh tonnes annually and the total value of dehydrated onion is around INR (750–800) crore. Despite so much potential, the domestic market for dehydrated onion in India is negligible. With 85% of production exported, the industry caters mainly to overseas markets, primarily Europe, Russia, Africa and Middle East countries. Yet, it faces challenges on many fronts due to inefficient trade policies of both the Indian government as well as governments of importing countries. Lack of awareness about dehydrated onions among domestic consumers has restricted domestic demand. Another challenge the industry faces is excess supply, resulting in low prices of the finished product. All these factors threaten the sustainability of dehydrated onion business. According to some media reports¹⁰ and field visit to Mahuva, a majority of the dehydration plants are on the verge of closure. Even when the quality of the finished product is good, prices are not competitive and the benefit of dehydrated onions is going to foreigners. The Ministry of Commerce and Industry had reduced transport assistance under the MEIS scheme from 7% to 3%. This illustrates the unsustainability of dehydration units which have been driven by government subsidies and not actual demand of dehydrated onions.

In TE 2014–15, 1.48 million tonnes of potato were produced in Agra. It is a major hub from where potatoes are sent to markets across India, especially to Maharashtra and the southern states like Telangana, Andhra Pradesh, Tamil Nadu and Karnataka. Owing to a well-developed network of cold storages, almost 90% of the potato produced in Agra is stored in cold storages and the rest is sold immediately after harvest. The farmers store their potatoes in cold storages by the end of March. The cold storage effectively plays the role of the marketplace, where traders from Uttar Pradesh and other states converge to buy potatoes and then sell to wholesalers in various states. The cold storage owner thus becomes a key intermediary in the potato value chain (Reardon et al. 2012).

Farmers in Agra reported costs as high as INR 700–800/quintal. However, according to the more conservative estimates provided by the National Horticultural Research and Development Foundation (NHRDF), the estimated cost of production of potato in Uttar Pradesh for 2016–17 was INR 480/quintal. The average yield considered by NHRDF was 275 quintals per hectare. Adjusting that to 240 quintals per hectare (as per NHB statistics and field inputs), the cost of production comes out to be INR 551 per quintal. For a detailed break up of costs, see Annexure 3.4.

Table 3.11 gives an overview of the average returns earned by Agra potato farmers who sell their produce just after harvest (in TE 2017–18). Farmers who sell their produce just after the harvest incur labour and transportation costs averaging around INR 50/qunital. As 2016–17 was a glut year, the average returns were negative for TE 2017–18.

Farmers who decide to wait and sell their produce after the harvest months have to incur the cost of renting a cold storage from the end of March to the end of November. The cold storage charges are INR 220 per quintal (the rate for 2017–18 season). This charge is fixed for the season, irrespective of the duration for which the crop is actually stored. The cold storage owner also provides financing to the farmer, based on mutual trust. The farmer pledges the potato stored in the cold storage or promises to store after harvest, on the basis of which he borrows money. The finance is usually given for around 6–8 months, at a rate of 2% per month. Taking into account all the above-mentioned costs, the total cost incurred by the farmer comes out to be INR 787 per quintal.

The price received by the farmers in June 2017 (when the field visit was conducted) ranged from INR 400–600, depending on the quality of potato. When the second visit was conducted in September 2017, the prices had dropped even further, to INR (150–400) per quintal. On the back of a bumper harvest and falling potato prices, the Ministry of Agriculture and Farmers’ Welfare announced in April 2017 that it would procure a maximum of one lakh tonnes under the market intervention scheme (MIS) through a state agency.¹¹ The purchase was to be made at INR 487 per quintal. Additionally, INR 121.75 per quintal or the actual overhead expenses (whichever is less) was also to be paid for including transportation, mandi tax, godown charges, etc. But with the cost of production at INR 787 per quintal, the price offered under MIS was hardly appealing to the farmers and no farmer we interacted with sold at this price. They preferred to wait until November and see if market prices improved.

TOP vegetables are relatively less water-intensive as compared to cereals and sugarcane (Table 3.12). There is no serious threat to the water table in the tomato belt (Andhra, Karnataka, MP), onion belt (Maharashtra (Nashik), MP, Karnataka) and potato belt (UP, West Bengal, Bihar), as mentioned in the Central Ground Water Body’s reports (CGWB, 2014). However, four talukas of Nashik district fall under semi-critical category in terms of ground water resources, which means there is no further scope for ground water development. Use of drip irrigation or sprinklers can reduce water usage to a great extent in areas where it is necessary and viable. Even though the use of sprinklers is in wide use for tomato cultivation, especially in Andhra Pradesh and Karnataka, its use in onion (except in Maharashtra) and potato cultivation is limited. The Central Ground Water Board in its report on Aquifer Map and Ground Water Management Plan (CGWB, 2018) states that micro irrigation techniques in the cropped area under onion have the potential to save water at 0.26 m per km². Traditional cultivation practices including flood irrigation are not sustainable and should be replaced by micro irrigation systems. Contract farmers engaged with private companies like McCain, PepsiCo and Jain Irrigation have been able to improve productivity by using micro irrigation system. All the farmers working with McCain have either drip or sprinkler irrigation systems installed in their fields. This is a mandatory condition imposed by the company. This bodes well for environmental sustainability as these micro irrigation methods economize on water use by generating savings of (30–50)% and facilitate 25% savings on fertilisers (ICAR-Central Potato Research Institute 2015). If micro irrigation is adopted by traditional farmers as well, it will not only be beneficial for them but will save a lot of water.

Another important issue is that of ‘virtual trade of water’, which refers to the import and export of hidden water in the form of commodities. India is a net exporter of water with food grains accounting for most of its export. India’s major exports are rice, cotton, sugar and soybean, all of which are water-intensive crops. China, on the other hand, is a net importer of water as it imports water-intensive soybeans, cotton, meat and cereals and exports fruits and vegetables, and processed food. Promoting the cultivation of vegetables, which are not water-intensive, will go a long way in promoting sustainable use of water in Indian agriculture.

Sustainable agriculture practices minimize agricultural inputs while increasing productivity and profitability. Research institutes for tomatoes, onions and potatoes (IIHR, DOGR, NHRDF and CPRI) have recommended balanced and sustainable use of fertilizer and pesticides. However, farmers often use excessive amounts of fertilizer and pesticides in the hope of greater returns, resulting in high pesticide residues in the product. In general, TOP crops do require manure and fertiliser, but the quantity depends on the variety, soil type, region, season, etc. Onions that yield 300 q/ha removes 73 kg nitrogen, 36 kg phosphorus and 68 kg potassium. Potatoes require higher amounts of fertilizer than onion—120–150 kg N, 45 kg P₂0₅ and 100 kg K₂O per hectare (NHRDF). Fertilizer and pesticide use in excess of recommended levels is a risk to the environment. In fact, organic vegetable farming with multi-cropping and the use of vermicompost should be encouraged.

According to a report by ICAR-CIPHET, the overall harvest and post-harvest losses in the case of potato ranged from (5 to 8)% and for onions from 5.49% in Gujarat to 12.72% in Maharashtra and other western hilly and plateau regions. The national level average was reported to be 6.05%. The report further states that the storage loss has reduced considerably owing to the development of cold storage networks, most of which are used for storing potatoes (ICAR-CIPHET 2015). However, other studies consider the ICAR-CIPHET estimate to be an underestimate. According to the report by the Committee on Doubling Farmers’ Income (Volume III), total post-harvest losses in the case of potatoes from the time of harvest to the wholesale point range from 18 to 26% (Committee for Doubling Farmers’ Income 2017). CPRI estimates 16% wastage along the entire potato value chain (ICAR-Central Potato Research Institute 2015). An ASSOCHAM-MRSS India study on cold chains in India states, “On an average, about 30–40% of horticultural produce gets wasted annually in India due to lack of cold chain infrastructure which includes both storage and transportation facilities” (ASSOCHAM-MRSS 2017). In India, except for a few pockets of potato and onion production, farmers have no or little access to cold storage for potato and improved storage structures for onion. Apart from post-harvest losses, there is also a lot of wastage at the marketing stage due to spoilage. While some APMC mandis recycle this waste to produce manure, the capacity is limited. Hence, there is an urgent need to set up vegetable compost units inside the mandi complex. This will not only enable production of organic manure but also bio gas. Various farmer producer organizations or trader’s associations should also be involved.

Our analysis suggests that there is an immediate requirement for more cold storages for potato in India especially in states like Bihar. Even for onion, DOGR studies suggest that cold storages are capable of reducing losses to less than 5% for onions. However, cold storages are not popular for storing onions because of the following reasons:

However, to stop sprouting and rotting, onion bulbs may be treated with gamma irradiation rays before keeping them in the cold store and taken out in a controlled temperature from the cold store. If these steps are followed, sprouting and rotting will not take place. Since the losses will decline to less than 5%, the high construction and maintenance cost will be offset and ultimately it will be profitable. Hence, cold storage may be considered even for storing onions in metropolitan cities near irradiation plants.

As crop-wise credit sources data for farmers are not readily available, data from interactions with stakeholders during field visits were used to analyze existing sources of credit for different stakeholders. Our field visit to Kolar suggested that 80% of small and marginal farmers source credit from the unorganized sector, comprising of commission agents, friends, relatives or through own sources. Large farmers or traders are an integral credit source for small and marginal farmers. This is because of mutual trust and understanding that has developed over the years. Getting credit for them is also easier and quicker as compared to taking loans from banks, which requires large amounts of paper work. Large farmers borrow only (30 to 35)% of the total cost of production. Of this, (60 to 70)% are borrowed from banks, less than 30% from relatives and none at all from commission agents.

In terms of schemes for farmers, government provides 90% subsidy on drip irrigation, the total cost of which is INR 25,000 per acre. However, the effective subsidy is just 70%; the 20% goes to middlemen. Farmers also get support in production technologies—precision farming, pest management, and drip irrigation. The government also provides subsidy for mulching, the practice of covering the soil with black polythene to protect the tomato crops.

In the comparatively developed region of Nashik in Maharashtra, farmers do have access to banking facilities and use Kisan Credit Cards (KCC). THE MSAMB implements a pledge loan scheme at 3% per annum against warehouse receipts through the APMCs for the benefit of farmers. District co-operative banks in every village is a major source of financing; however, (30–40)% of farmers have shifted towards nationalized banks as district co-operative banks are loss-making and many are shutting down. There is also a provision of a crop loan of INR 30,000 per acre for onions. This is the minimum amount; the amount increases over time if instalments are paid regularly. An interest rate of 7% is charged for crop loan up to INR 3 lakhs and there is a rebate of 2% for regular repayment. After the initial INR 3 lakhs crop loan, farmers get a cash credit loan at an interest rate of (10–11)% by nationalized banks and 12% by private banks.

During the field visit, APMC officials said that both in Lasalgaon and Pimpalgaon, there is no role for commission agents as money lenders. According to some farmers we spoke to, however, commission agents or other informal sources of financing are approached when it is not possible to get loans from banks due to non-payment of dues.

The field visits to Agra threw up interesting insights about the financing of the potato value chain. We found that most farmers have a kisan credit card (KCC) but as most of them fail to repay loans on time, they end up paying higher and penal rates of interest (7% or more). The failure to repay can be attributed to farmers using crop loans for consumption purposes or to repay existing loans from informal sources. Even if farmers do not default, the loan amount received is often not enough for small farmers and they have to resort to some degree of informal borrowing. Due to a bumper crop, farmers received little return for their produce which has increased the dependence of many small and marginal farmers on sahukars (money lenders). The sahukars, many of them large farmers, charge a minimum of 2% per month (this could go as high as 5% per month in some cases). The transactions are based on and dictated by personal relationships.

Cold storage owners are another source of financing for farmers. They charge as much as the sahukars (around 2% per month). The cold storages, in turn, avail the overdraft facility given by banks to lend to farmers. This enables cold storage owners to earn arbitrage since the interest rate they charge from farmers is twice to five times higher than what they pay to the bank. Besides, the practice of not providing proper receipts to farmers for the potatoes stored makes it difficult for farmers to access other sources of credit. As Agra is home to a large number of cold storages for potato, a warehouse receipt system should be made compulsory to help farmers access low-cost finance.

Nalanda in Bihar is a hub for vegetable farming; however, vegetable growers are not able to take loans, primarily because banks view vegetables as a high-risk activity and because of the high proportion of defaults by vegetable farmers. Besides, many farmers find it difficult to get a Land Possession Certificate (LPC), especially when land records are in names of fathers/grandfathers, making it difficult for them to avail bank loans. Hence, a very limited number of farmers who have proper land records are able to take formal loans. The interest rate charged by banks is 4% per annum if premiums are paid on time, but this could go up to (11–12)% per annum if there is a default. Interest rates of loans from non-institutional sources are as high as (2.5–3)% per month.