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Tomato price crisis: Solutions to alleviate implications on India’s supply chain and trade operations

– By Nirav Choksi

The unbelievable rise in tomato prices has been making headlines in the last few weeks.From McDonald’s taking the call to temporarily drop tomatoes from their menu items to local farmers reporting large-scale thefts of tomatoes worth Rs 2.5 lakh – the surging prices have sent shockwaves across India. Moreover, this has placed an additional financial burden on households forcing them to cut down their tomato consumption.

What is the magnitude of this price surge? Reports state that tomato prices have jumped by a whopping 445 per cent, surpassing the costs of petrol.

As a result, while tomatoes were previously sold at Rs 15-20 per kilogram – the wholesale price has now touched an astounding Rs 250 per kg. The rise in tomato prices has disrupted the supply chains and is posing significant challenges to trade operations in India. In this article, we will understand the ramifications of the price surge, its effect on trade operations, and viable supply chain financing solutions that will help mitigate the impact.   

What has led to the steep rise in tomato prices?

Globally, India ranks high as the second largest producer of tomatoes. Among the major producers of tomatoes in the country are the southern and western states such as Andhra Pradesh, Karnataka, Tamil Nadu, Maharashtra, Madhya Pradesh, and Gujarat. The unprecedented rise in tomato prices is not just another case of a ‘supply and demand’ issue. Cyclonic storms and untimely rainfall in the states of Karnataka, Andhra Pradesh, and Maharashtra, have contributed significantly to the sharp rise in prices. Excessive rain has wreaked havoc causing significant yield losses. 

The post-harvest losses and supply chain disruptions have resulted in anarchy in the open markets. The repercussions of this have dealt a severe blow to the nation’s food security. Supply chain disruptions and the cascading effects on trade operations

The exorbitant tomato prices have upset the supply chains, taking a toll on farmers, distributors, retailers, and consumers alike. With farmers struggling to meet the demand, the disruption impacts the entire supply chain, resulting in logistic bottlenecks, high transportation costs, and a slowdown in deliveries. While all this has placed a financial strain on businesses operating within the tomato supply chain, the increased tomato prices have affected the cost of production across various other industries including food processing, restaurants, and catering services. 

Consequently, the high prices present a looming risk to India’s domestic and international trade operations. In the domestic realm, the price surge may lead to inflationary pressures, not to mention reduced purchasing power for consumers, resulting in overall economic instability. Whereas in the global markets, Indian exports of tomatoes will become less competitive, which can result in a significant drop in trade volumes and market share.  

Key strategies to address the financial strains faced by businesses

In the current challenging environment, innovative supply chain financing solutions have emerged as a tool to restore stability and empower tomato vendors and large corporates affected by the spike in prices. Two key solutions that can alleviate the adverse effects and ensure uninterrupted operations are:

Pre-invoice financing: This is an asset-based financing solution based on the occurrence of process milestones or billable events such as the issuance of Goods Received Note (GRN) and Proof of Delivery (POD). Businesses can unlock funds based on the future value of invoices and tackle immediate expenses such as procuring tomatoes at higher prices. With pre-invoice financing, the vendors can access funds upfront and secure payments for their tomato supplies before the actual delivery takes place. By addressing working capital needs and mitigating the risks of delayed payments, pre-invoice financing enables businesses to navigate the price surge more effectively.

Early payment solutions: With early payment solutions, corporates can facilitate on-demand working capital for vendors, ahead of the payment cycle. By accelerating payment timelines, vendors can overcome cash flow gaps, meet urgent business needs and better manage the impact of the rise in tomato prices. While vendors are paid early, enterprises can benefit from early payment discounts. By providing instant liquidity to vendors, corporates strengthen their vendor relationships and mitigate the risk of supply chain disruptions due to the lack of adequate capital.

Bottom line

The recent rise in tomato prices has presented significant challenges to the supply chains, hampering the trade operations of the country. The need of the hour is for businesses to adapt to price fluctuations and ensure the resilience of supply chains. Innovative digital solutions tailored to meet the supply chain financing needs of businesses both big and small—will enhance cash flow and give them greater flexibility to thrive in the face of turbulent market conditions. As the country strives to overcome the tomato price surge, leveraging need-based financing solutions such as pre-invoice financing and early payment becomes vital not only for businesses to survive but also for building sustainable and resilient supply chains.

(Nirav Choksi is the co-founder & CEO of CredAble.)

(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)

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