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As the potato criss-crosses the supply chain from a farm to the end consumer, its prices bloat manifold, making the commodity a lucrative one to deal in

Every time there is a rise in the prices of agriculture products, there is much public outcry on the inefficiency of the governments, whom we all love to blame.

However, has this ever made you pause and think why a kilogram of rice costs what it does or for that matter why a kilo of vegetable or fruit is priced at that price point? Well, though it is a known fact that the middle men are the actual beneficiaries, while the farmers who actually produce the food are the worst sufferers in the food value chain, the question is how much price escalation happens at each level and why? For a better understanding of this, we decided to trace the journey of one of the most common items on your daily menu, potato, from your neighborhood vegetable vendor to the place of its origin i.e. the farms.

So why potato you might ask? There are several reasons behind it. One, potato is one of the commonest of all vegetables. In other words, it is a vital part of an average Indian’s diet. Two, it is grown in almost all the states of India, which have very diverse climatic conditions. Three, on the global map, India is the fourth largest producer of potatoes after China, Russia, Poland and the US.

Where is potato grown in India?
Potato is grown in almost all states of India, with the exception of Rajasthan, Goa, and Kerala. According to figures from the Cetral Potato Research Institute (CPRI), the total potato production in the country in 2007-08 was approximately 28 million tones. The crop was cultivated in an area of 1.28 million hectares, which is approximately 0.65 percent of the total cropped area of the country. Nearly 80 percent of the total produce came from the Indo-Gangetic plains of north India, and from the months of November-March. Uttar Pradesh and West Bengal are the largest growers of potatoes among all states, accounting for almost 70 percent of the total produce. Next in line come Bihar, Punjab and Gujarat, which together account for approximately 15 percent of the total potato production. However, while the potatoes produced in UP and Bengal are mostly used for consumption, those from Punjab are used as seeds.

First Step: The potato farmer
For understanding “Potatonomics” better, DARE spoke to a number of farmers including Jaswinder Singh Sangha, a large-scale potato farmer and the general secretary of Jalandhar Potato Growers Association. Singh explained, “Though UP and Bengal are the largest potato producing states in India, the potatoes produced in these states are used mainly for consumption. On the other hand, Punjab produces very good quality of potatoes that are used as seeds. Entire India gets its potato seed supply from Punjab, which are sold under different trademarks.” Since the purpose of cultivation in these states is different, the cost of production also differs. For example, in Punjab the entire potato is sown as a seed, whereas in other states, one potato is cut into several pieces, depending on the number of nodules it has, before sowing. “Therefore,” Sangha explains, “When farmers in Punjab use almost 15 quintals of potatoes for sowing one acre of land, our counterparts in Bengal and UP use only two to three quintals per acre during the sowing season. This affects the prices drastically. However, the UP and Bengal potato farmers have to pay heavy freight charges.”

Where do you get your potatoes from?
Period	Source
January-May	Uttar Pradesh, West Bengal, Bihar, Punjab, Madhya Pradesh, Assam, Karnataka, Haryana, Maharashtra, Orissa, Gujarat
May-June	Spring crop in hills and North Western plains
July-August	Southern Hills
October-December	Punjab, Uttaranchal
December-January	Southern hills

On an average, the cost of production of potatoes per acre for a farmer is approximately Rs 20,000, which includes Rs 10,000 worth of seeds, and another Rs 10,000 worth of fertilizers, pesticides, farm machines and labor. The yield per acre ranges somewhere between 80 and 150 quintals, depending on the climate conditions, quality of seeds and so on. Calculating on the basis of these numbers, the cost incurred for producing one kilogram of potato for a farmer is approximately Rs 2 per kg.

After harvesting a potato crop, which is classified as a semi-perishable item, a farmer has two choices—he can either sell his produce at a local mandi (vegetable market) in the vicinity or to an aggregator who stores the produce in cold storage, and transports and sells whatever he has procured at a larger mandi. This is the second link in the chain, which is taken up later in the article.

Farmers at this stage face several problems too. Small land holdings, lack of mechanization, lack of good quality seeds and other necessities like fertilizers and over-dependence on weather are just some of the problems. Another major problem faced specifically by potato farmers is marketing. Sangha explains, “Marketing their produce is a big problem for farmers, who more often than not either lack skills, infrastructure, or money. This forces a small farmer to either sell in the local mandi or become a pawn in the hands of the middlemen.”

Second Step: Aggregator/ Commission Agent
As it is difficult for farmers to sell their produce directly at the large mandis, the produce then passes through the aggregators, who are also known as the commission agents. Sangha explains, “At the time of harvest, aggregators or commission agents from far away flock to the potato producing regions to buffer their stocks. They pay the prevailing price and store them in cold storages.” The price of potatoes for the aggregators depends on the anticipated demand and the supply (or produce) in the prevailing year. For example, Sangha says, “Last year, when we had a bumper potato crop in India, the prices of potatoes per quintal fell to almost Rs. 250-300. This year the prices for the aggregators is somewhere around Rs 450 – 500 per quintal.” Therefore, the procuring price per kilogram for a commission agent is approximately Rs 4.50 – 5 per kg.

After procuring, the potatoes are then sent to the cold storage by these aggregators. Virender Kumar, a commission agent at the Okhla Vegetable and Fruits Market in New Delhi says, “Though there are several government and private cold storages in India, their number is very low compared to the agricultural production. The cost of storing one quintal of potatoes ranges between Rs 80 and 120 for six months. This price fluctuation depends on a number of things. For example, if there is a bumper crop then there is a shortage of space in cold storages, and the prices go higher for us.”

However, the potatoes become sweet when stored in cold storage for long. A spokesperson of the CPRI explains, “When stored for long, the sugar content in the potatoes increases, which is not preferred by the consumers. Therefore, they are treated with CIPC, a chemical, through a technique called fogging. This is done to reduce the sugar content as well as stop the growth of nodules. Such potatoes are sold in the market under the name of ‘sugar-free’ potatoes.” As these potatoes are sold at a higher price in the market, they fetch higher returns to the commission agent. As and when the need rises, the commission agent releases the stock and then sells his stock at the bigger mandis. The final selling price also takes into account two major things—the freight charges of transporting the potatoes from the farmers to the mandis as well as the license cost to the commission agent that has to acquire in order to do business.

Contract Farming

While munching on crispy, thin potato wafers or perfect golden French fries, you must have wondered where these players get their potatoes from. Since these players have to be consistent with the quality as well as supply, they opt for contract farming tie-ups with farmers. Under the contract farming system, the companies make a pact with the farmers to provide them with seeds, technical know-how and low-level mechanization and then buy back the produce at a minimum standard price (MSP) as pre-determined under the contract. The farmer, on the other hand, primarily supplies his land and labor. This MSP varies from year to year depending on the prevailing demand and supply. Depending on the contract, a farmer can also sell his produce in the outside market under certain circumstances such as a higher price for his produce. Companies such as PepsiCo and McCain are entering into contract with farmers to ensure uninterrupted supply of potatoes. It has been reported that PepsiCo now sources nearly 50 percent of its requirement of 50,000 tonnes of potatoes per annum for its products through this channel. For a farmer, this has several advantages and disadvantages. The advantage for him is that he does not have to shell out much money during the sowing season as the major inputs are provided by these companies with a promise of buyback of the produce. However, there have been reports of companies backing out on the price due to the “inferior quality” of the produce. The disadvantage is that, for example in Punjab, farmers generally sow three crops (paddy, wheat, vegetables or potatoes) per season. If the farmers enter into contracts with the companies, it becomes binding on them to keep the potatoes for a longer time than the potatoes used for consumption purpose. Because of this, the next crop suffers. Whereas, in Punjab, the government buys back the paddy and wheat produce from the farmers without quality concerns at a pre-determined price. Therefore, though the trend is on the rise, contract farming is yet to take off on a larger scale.

This year, as the demand for potatoes is high and the supply is low, these commission agents are getting a greater profit margin. Virender Kumar says, “Last year, the potatoes could not help us recover the cost of storage. However, this year we are witnessing very good profits of almost twice and thrice the price at which we procured them from the farmers. Initially a packet (50 kgs) that was bought for Rs 200 was being sold for Rs 400, then it increased to Rs 500 and now it is selling at a price of Rs 600.” Therefore, the selling price of potatoes by a commission agent would be at approximately Rs 10 to Rs 12 per kilogram.

The Third Step: The vegetable vendor and Restaurants
From the vegetable mandi, the potatoes are mostly bought directly by consumers like us, or by vegetable vendors, and those in the food business, who create another link to the chain. The neighboring vegetable vendor who procures from the mandis, obviously adds on his own cost before selling it at your door step. Now, the price also depends on which city you are in and even the locality where you live. The average prices at which a vegetable vendor in New Delhi sold per kilogram of potato this summers was Rs.13. The price also depends on the festival season. Like, for example, the North Indian cities celebrate the nine-day festival of Navratras with much enthusiasm. During this time, the consumption of potatoes goes up significantly. Due to the increase in demand, the price of potatoes has almost touched from Rs 25 to Rs 40 per kilogram depending on the variety. On the other hand, the hotels and restaurants who bought vegetables for as low as for Rs.12 a kilogram in the mandi, sell you the final prepared dish at an average price of Rs 50 a dish. If you assume that they use an average of 100 gms per dish for say a alloo pyaz subji, then they earn almost the Rs 500 from one kilogram of potatoes!

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