Why do consumer prices keep rising even when farmers earn so little?

It’s one of Indian agriculture’s cruellest facts: farmers complain they can’t cover costs while selling onions at INR 5 per kg, yet consumers simultaneously protest prices of INR 80 per kg in retail markets. Both are right to feel squeezed. The late farmer leader Sharad Joshi captured this sentiment in a poem translated as “I sell my produce cheap, and die. You pay so much that you die too”. So where does the money go? The answer lies in what happens between the farm gate and your kitchen. Between the farm gate and your kitchen, produce passes through one of the world’s most fragmented and inefficient supply chains, and farmers capture very little of the value along the way.

First, agricultural produce in India typically passes through multiple hands: licensed traders, commission agents (arhatiyas), transporters, wholesalers, and retailers. Each layer is governed by different regulations, costs, and taxes: mandi fees, commission charges, transport costs, state taxes, and often informal payments to inspectors and gatekeepers. An RBI survey revealed that for perishables like tomatoes and onions, farmers receive less than 30% of the final retail price. The remaining 70% gets consumed by the multiple hands it flows through.

Second, most Indian farmers lack access to cold storage or warehousing. Almost a third of the total food produced in India is lost due to poor cold-chain technology. When the harvest arrives, supply floods the market simultaneously, driving prices down. Farmers must sell immediately and can’t wait for better prices. Months later, when supplies dwindle, prices spike. This volatility creates a perverse cycle: traders and retailers must price in the risk of spoilage, sudden gluts, and unpredictable government interventions (such as export bans, import duty cuts, or stock limits). These risk premiums get passed to consumers.

Third, government policy often adds fresh shocks. Export bans are to “protect consumers” from high prices. Import duty cuts to flood the market. Stocking limits that discourage warehousing. The Essential Commodities Act plays a significant role in this by criminalising warehousing for when the government feels it is “necessary or expedient to do so for maintaining or increasing supplies.” Each intervention seems rational in isolation, but creates unpredictability that raises costs throughout the chain. Think of it as a leaky pipe: water (value) enters at the farm gate, but by the time it reaches the consumer tap, much has been lost to friction, evaporation (wastage), and leaks (inefficiency) along the way. Who benefits? Ironically, often no one. Traders and intermediaries aren’t getting rich; they’re absorbing volatility and policy risk. Farmers stay poor. Consumers pay high prices. The real culprit is a system designed for control rather than efficiency.

The solution isn’t to squeeze intermediaries further or impose more price controls. Instead, we need better infrastructure (cold storage, logistics), more competition (easier entry for new players), and predictable policies so that risk premiums can come down. When farmers can store their produce and sell when prices recover, when traders can invest in warehousing without fearing sudden stock limits, and when the distance between farmer and consumer is reduced, only then will the gap narrow.