Business - India;Potato get the stir fry

Potato, India’s most popular vegetable, is getting sautéed. In biggest mandi Agra, suddenly spud is a dud, going abegging for Rs 3/kg. What happened? It’s a curious tale of big money, corporate promises and politics.

Meet farmer Rustom Singh from Agra’s Khanoli village. For 20 years, he has grown potatoes on 150 bighas leased land. That makes him part of a global carb revolution for the McFry generation. And it seemed a savvy move.

Indian yield and demand are rising. Output has jumped 850% since 1960. We may each eat 15 kg a year but our kids are the FritoLay generation. IARI aptly calls its new seed ChipSona. The big boys have moved in, singing “You say potato, I say potato”. From ITC with its own Technico seeds and Bingo crisps to world’s biggest fry company McCain Foods, which nurses the potato from seed to snack, corporate money has made potato glamorous.

When retail chains said they’d buy directly, Rustom Singh was delighted. He knew they would be no match for his negotiating skills. When exchanges launched potato futures, Rustom Singh was ready with his trolleys. He figured out you make more by delivering on the exchange, where prices were higher than Agra mandi. With a Baleno and a Scorpio in his porch, life was good. Like the perfect french fry, potato was an instant bestseller.

Until this year, that is. FAO declared 2008 International Year of Potato. As if on cue, India harvested a record 30 mn t. But this enthusiasm for the world’s most important food crop after rice and wheat began unravelling Rustom Singh’s life.

In April beginning, he sold a 83-kg ‘packet’ for Rs 420. That was a fair-ish price. Not drool-making but okay. Since futures were looking good, he loaded three trolleys for exchange delivery. Then came the first sledgehammer. Government shut potato futures for reasons we will never know. A stunned Rustom Singh trudged to the mandi, where a packet fetched Rs 400. Our man didn’t lose hope. Like media people, he had faith in corporate promises. Since two retail chains had approached him before harvest, he was certain they’d be back. Logically, the low prices would work in his favour by accelerating demand. He was wrong.

The retail chains never came back. That was blow number two. Instead of bargaining with dozens of farmers like him, they bought from Agra mandi. It was cheaper, faster and less stressful for purchase managers harassed by supply schedules and cost targets. Rustom Singh would have chased them there too. But in a falling market, companies slowed purchases. That was blow number three. Stocking up is difficult even for large players because they can’t get empty cold stores. Snack food, starch and potato powder companies did come. But with 1% of the total crop processed, it was small fry. Potato is now going for Rs 325/packet, down from Rs 500 last year.

Rustom Singh sat down to count his options. It was a short list: dump the stuff and run. The reasons were obvious. Growing a kilo cost him Rs 2.50. Like the rest of us, potato can’t live without an AC. Nine out of 10 Indian cold stores house spuds. Rustom Singh’s nearest cold storage owner was demanding Rs 55 to store 50 kg, or more than a rupee per kilo, to pay for expensive diesel. Storing potatoes was anyway unwise when there is no way of telling future prices. If you add the cost of moving potatoes into the cold store, Rustom Singh would have spent Rs 3.75/kg when market price was Rs 3.90/kg. The scenario sucks.

Today the crisis is cash flow. As a prosperous customer, he had easy access to bank loans. He intends to keep it that way. Luckily, he didn’t borrow from cold storage owners, who give 50% of market price. At wit’s end, Rustom Singh is now selling assets. The Scorpio was first to go. With a Rs 40-lakh loss, he is panicking. Those with arhtiya loans are in worse trouble.

For Agra growers, contract farming was never an option. Unlike Gujarat, they can’t grow fry-quality potatoes because the climate is unsuitable. Rustom Singh believes anyone with a contract this year is ‘dhani’ because it insulated from the crash. That’s true. But snack food companies aren’t stupid. Having bought at a serious premium in 2008, they are unlikely to promise more in 2009.

That would still be a great deal. Mandi prices are unlikely to rise next season. Potato seed is so cheap cash-strapped farmers will re-plant it next month. Bankruptcy may force land to change hands. But acreage won’t fall. The only X-factor is weather.

So who gained from this aloo-mash? Extruded snack companies and street food specialists such as Haldirams. Ditto retail chains who earned a good margin. In a Greens price revolution, where lauki is priced Rs 40/kg, potato at Rs 10 didn’t raise customer eyebrows. At the top of the heap were middlemen who earned off Rustom Singh, cold store owners, retailers and traders.

Defeated by nervous companies, inadequate storage space and government bungling, Rustom Singh couldn’t profit from his productivity. He may take a stoic view. But boom-and-bust cycles aren’t inevitable. In top producer China, its Agra-equivalent Guyuan region has 2,000 potato processing companies which ship to Japan, South America and Europe. A big crop there is a bounty, not a curse. Farmers like Rustom Singh have pushed India into global third slot for a crop equally at the heart of westernised high-carb diets and nutritional security. In the Year of the Potato, the last thing they deserve is getting dropped in hot oil.