The current price surge is seasonal. Long-term solutions include reform of APMC Act, more processing.
Given the 12 per cent contraction in onion acreage the last rabi, it isnít surprising that onion prices have risen, more so since the heavy rains have delayed the next crop. Indeed, given the nature of the crop, the stocks-to-use ratio is probably the lowest in these months. So it is not surprising that even the smallest news of crop delays sends prices spiralling. But the problem is not restricted to onions, there is a steep rise in all vegetable prices. Normally, higher prices should lead to a higher supply response. That hasnít happened in full measure for two reasons. First, thanks to state governments insisting that all trade has to take place through trader-controlled mandis, the farmer doesnít get too much of the increased price. Two, thanks to the near-complete lack of efficient storage facilities, all that an increased supply response does is dramatically lower prices ó till farmers are dumping onions on the highways as there are no takers.
If Indian agriculture is to get out of the inflation-deflation spiral, the government has to free farmers from the yoke of the mandis. The good news is that this would be a vote-catcher as well ó farmers will be grateful to be able to capture the higher margins and households to be spared a significant chunk of the 50-75 per cent mark-ups between wholesale and retail prices. The need to build efficient storage is obvious, but what has to be equally clear is that this will get built only if big buyers, like organised retail chains, for instance, are allowed to buy straight from the farmers to eliminate middlemen.
Related to this is the issue of processing of fruits and vegetables. It is worth keeping in mind that while wholesale food inflation rose 18.8 per cent in September over that a year ago, that in manufactured food articles rose by a much lower 1.6 per cent. Since the basket of articles in fresh and processed foods is different, a one-to-one correlation does not exist, but some broad points can be made. Milk inflation in September was 5.8 per cent over that a year ago, but that in powdered milk was minus 0.17 per cent, while it was 0.95 per cent in ghee and 3.74 per cent in butter. Similar differentials can be seen in the case