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Soaring Vegetable Prices

September 8, 2014 at 10:29 AM  •  Posted in From the CEO's Desk, Inside Scoop, Why say organic? by  •  0 Comments

The recent soaring prices or vegetables got us thinking about how this trend affects the model we are trying to develop and what we can do to protect ourselves and our customers from such fluctuations in future. 

As I understand it, the sharp increase in rates of vegetable are largely due to speculations in the commodity market or weather conditions or hoarding. A more nuanced and detailed explanation of causes is perhaps better left to the skills of an economist, considering the complexity of the system and different variables which come together to determine market prices.

One would think (or hope) that since we are a farm-to-fork operation, cutting out layers of middlemen, it would be enough to ensure that our prices are not subject to such seasonal fluctuations. However, we have not yet developed a model which functions independent of the conventional produce market, especially when it comes to prices. Since I Say Organic determines how much to pay our farmers based on the day’s market rate, our MRP remains subject to the same fluctuations which effect the day’s market rate.

One of the reasons behind setting up I Say Organic was to bring a much needed transparency in food distribution.

But ironically, despite sourcing directly from farmers, bypassing the wholesale markets and bringing produce directly to consumers, we are still indirectly connected to the larger system of food production and distribution in the country. So naturally, when the price fluctuates in the conventional produce market, the effect trickles down into our pricing as well. Working towards an ideal model or condition, it would be great to develop a model which functions independently or outside of the conventional produce market, but that has been difficult to achieve till now, and given the complexity of the system, seems highly unlikely.

Despite the strong relationship we have with our farmers, why would they sell their produce to I Say Organic, if the conventional wholesale market offers a better price? For example, our farmers in Haryana were able to get Rs. 60/Kg for onions last week. They were ready to refuse the premium (we paid to farmers over the conventional market price) as that would have made the prices soar even further. But we cannot tell them to sell their produce to I Say Organic at a lower rate when the market is ready to absorb their production at considerably higher rates.

In the future, as the enterprise grows and the market for organic grows, we aim to have multiple farmer groups supplying to us. In that case we could hypothetically, have a model where prices are fixed for a season, and mark a pre-condition to stop sourcing from farmers who look for quick gains by selling to wholesale market whenever the price fluctuates in their favor.

Another alternative would be that we bulk purchase commodities like onion, potato and garlic from farmers at a fair price and then sell for a constant rate throughout the year despite fluctuations in the market. Here the problem would be if the prices were to drop drastically, would our customers then understand the reason why our prices are higher?

These models might be successful in controlling prices to a certain extent, but if weather is the culprit, then no matter whether you work independently of the conventional markets or not, there will be crop spoilage and prices will go up. For example, this past month, the rains have destroyed a lot of planted vegetables nurseries, which is why we have been facing supply issues and prices are going up.

The way we see it, these problems also present the inherent possibility of finding alternative and innovative solutions. What, how, when is something we hope to be working on.

Would love to hear any thoughts our readers have.

Ashmeet Kapoor
Founder, CEO, I Say Organic

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