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The Tomato Tango: A Dance of Rising Prices

Scientifically, onions cause tears but off late, tomatoes have been making everyone cry. I have been wanting to cook some arrabiata pasta for weeks now but tomato prices aren’t allowing me to. Tomato Prices have reached Rs. 250 per kg and people are comparing the price of a vegetable with that of gold and petrol. We have seen cash and jewellery being stolen but a few days ago, someone in Karnataka stole tomatoes worth 2.5 lakhs. SEBI has rules governing the change in share prices but the system for food commodities is rather scattered. For those of us who don’t buy groceries ourselves this is nothing, but this is an issue because tomato is a staple vegetable in India and the sharp increase in its prices has been hurting millions of common Indian households. So this week, I am looking into the factors that are keeping the common man’s fridge devoid of tomatoes.

Understanding Tomato Production

Before I get on to discussing why the prices have been rising, let’s understand how tomato production works in India. So tomatoes are grown twice a year – both as rabi and kharif crops. Rabi crop that comes to the markets between March and August is grown in parts of Maharashtra, Karnataka and Andhra Pradesh. The Kharif crop grown in Uttar Pradesh and Nashik is supplied during the rest of the year. So, the trouble we are facing is happening around the rabi crop because its production areas are highly vulnerable to seasonal changes, thus any minor changes too affect crops severely. 

Why are the prices rising?

While the common understanding is that monsoon has caused this fire, it’s not the only reason. But of course, nature is the major factor. Climate change has been shifting seasonal patterns so drastically that even weather forecasters are not able to correctly predict the weather. And then, since we are talking about agriculture in India, there are a series of middlemen in the unorganised sector. 

Here are three reasons behind rising prices:

1. Untimely Monsoon: Tomatoes are really fragile even when kept in cold storage. Thus, as monsoon onsets, there’s an oversupply and tonnes of tomatoes are thrown away by farmers. Then, due to the rains, the harvest rots, transportation is hampered and a shortage of the crop is seen which in turn shoots up the prices. But this happens every year to some extent around this time of the year. The problem is that this year monsoon arrived early and multiple other factors came together and sustained for a long time. 
2. Heat and Pest Attacks: We have seen the extremes of weather this year, first the scorching heat and then the abundant monsoon. The sudden onset of heat earlier this year attracted pest attacks on the rabi crops. Viruses and leaf diseases due to the heat significantly reduced the production. 
3. Middlemen: Agriculture sector in India is severely affected by exploitation by middlemen and corruption. Every state has an Agricultural Produce Market Committee which conducts open auctions where farmers sell their produce. The problem here is that there are multiple layers of middlemen involved between the committee and farmers and then from here to consumers. In times of food inflation, the parties involved very often succumb to malpractices due to which both farmers and consumers end up losing.

But even these all are not new problems, and the price hike has been going on for many weeks now. So, why are we still not able to solve it!

The Tomato Hackathon

Is there a solution? Well, not as of now. Indians consume more than 95% of its tomatoes fresh, which is why a very small amount only is processed into purees and concentrates. And storing tomatoes is a difficult task as the life is short even with cold storage. 

Even the government is at a dead end with this and has invited proposals from the commoners for a solution. A month ago, the Ministry of Consumer Affairs announced the Tomato Grand Challenge Hackathon asking students, researchers, start-ups etc to solve the problem of tomato value chain making sure availability at affordable prices. Of course there have been some start-ups proposing solutions earlier, but none has worked well enough to be scaled. 

For now, state governments have been giving out subsidies and implementing price caps. Last month, the centre capped the wholesale price of tomato at 80 rupees per kg in Delhi, Lucknow and Noida. Several other districts and governments took similar steps. 

Will tomato prices reach 300 bucks?

Tomato prices are an important contributor to inflation and the volatility in its prices affects the prices of other vegetables too. As per RBI, the prices remain high (above 40 rupees) for about 40 days in an year but we have seen it always stabilise and be under 20 bucks for most part of the year. 

Since there is a shortage of rabi crops supplied in markets till August, prices are gonna stabilise only when the kharif crop is here. So, it’s gonna be a couple of weeks until prices come down. 

Stock Specifics: Elin Electronics Limited

This week in stock specifics, we are talking about an electronics manufacturing company that supplies directly to OEMs i.e Original Equipment Manufacturers like Bajaj, Phillips, LG and more. Elin has been in our smallcase portfolio for sometime now and we continue to hold it. Elin Electronics Limited is a part of the Elin group established in 1969. It offers Electronic Manufacturing Services, Universal Motors and Induction Motors, Design & Manufacturing of Tools, Moulds, Dies, Domestic Kitchen Appliances, Personal Care Products,  Lighting Products & Automotive Components.

Let’s understand the company: 

• Elin Electronics Limited incorporated in 1969, is a leading electronics manufacturing services (“EMS”) provider. 
• The company is a manufacturer of end-to-end product solutions for major brands of lighting, fans, and small/ kitchen appliances in India. 
• Elin is one of the largest fractional horsepower motors manufacturers in India. 
• As we can see in the table here, Elin has several segments with lighting, fans and switches being primary. In this segment, lighting is the major contributor to revenue. 

If we look at the numbers, there has not been much positive growth as compared to the last year but Elin has some plans of growth. The company reported negative growth in revenue and EBITDA but these have been attributed to weak macroeconomic trends and some one-off operational charges. 

Here is how Elin is planning to expand:

• The company is expanding one of the plants to have additional space by the end of FY24.
• Nine new products are under development. Seven will be launched in the next financial year and the rest in FY25. 
• Elin is also streamlining resources like labour, reducing its electricity cost, and developing overall functioning. 

CURRENT ECONOMIC EVENTS

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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.