The Bank of Baroda’s (BoB) Essential Commodities Index (ECI) has remained in deflationary territory for four consecutive months, with prices declining by 1 per cent year-on-year (YoY) in August and by another 0.9 per cent in the first nine days of September. The trend is being largely driven by sharp corrections in vegetables and pulses, aided by good domestic production and favourable global food and energy prices.
The lender noted that tomatoes, onions, and potatoes have seen pronounced corrections, with onion prices dropping by 37.5 per cent YoY, the steepest fall since January 2021, and potato prices touching their lowest in 44 months.
While this deflation is a relief for consumers and is expected to soften inflation by 55–75 basis points, questions remain on the sustainability of these gains and the unintended consequences for farmers and the broader economy.
The farmer’s paradox: cheaper food, lower incomes
On the surface, lower food prices appear to be a win for households battling rising costs. However, for farmers, the story is different. Steep price declines in perishable crops such as onion and potato can translate into distress sales, income uncertainty, and in some cases, outright losses despite healthy yields.
This cyclical phenomenon, often described as the ‘cobweb effect’, discourages farmers from planting these crops in subsequent seasons, potentially sowing the seeds for future shortages and price spikes.
Pulses, too, tell a similar story. While tur/arhar saw a sharp drop of 29 per cent in August, urad, moong, and masoor also recorded successive declines. Though the current kharif season has seen improved sowing, prolonged deflation may erode farmer confidence and disrupt supply cycles, raising questions about long-term food security and agricultural viability.