EXPLAINED: Onion prices may not fall anytime soon; here’s why prices are on rise

While some price correction is expected to happen in the days to come, prices will fall significantly once the rabi crop hits the markets.

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  • Parthasarathi Biswas

While more urgent news reports may have pushed onion prices out of the headlines, the bulb continues to retail above Rs 100 per kg in most metro cities. Despite a slew of government measures, including strict vigilance on traders to prevent hoarding at any level, the price remains high. According to trade sources, prices are unlikely to come down any time soon as imports have also failed to make a difference.

Why did prices rise so much in the first place?

Since September this year, onion prices have been rising, with the crisis peaking late in November. Urban consumers in Pune and Mumbai had to pay more than Rs 100 per kg, which was a first for many in the state. Average trading prices at wholesale markets in Nashik — the onion capital of the country — have hovered around Rs 6,000-6,500 per quintal.

The failure of new kharif and late kharif crops have resulted in this unprecedented rise in prices. Farmers in Maharashtra plant their kharif crop in June-July and harvest them post October. Similarly, the second crop, or late kharif, is planted post September-October and harvested in January. The produce from both these crops have higher moisture content and can’t be stored for a long time. It’s the rabi or summer crop (planted in December-January and harvested post March) which can be stored.

What did the government do to control the prices?

To start with, the government had stopped the export of onions while allowing imports. It also put limits on stocks for wholesale and retail traders to prevent hoarding. Till date, import contracts of nearly 17,000-18,000 tonnes have been finalised by the state-owned MMTC while private traders have imported around 8,000-8,500 tonnes of onions on their own. The Union government also has plans to import around 1 lakh tonnes to ease prices.

Why are prices not coming down despite the measures?

Imports and stock limits are the last weapons in the arsenal of the central government to control prices. Once stock limits are declared, district collectorates have the power to seize excess stocks. Traders who defy the stock limits can face jail terms under the Essential Commodities Act.

Imports are expected to improve the availability of the product and bring down prices. But both these measures have failed to bring down onion prices.

On average, nearly 5,000-6,000 tonnes of onions are consumed in Maharashtra, and 40,000-50,000 tonnes per day.

Even a large volume of imported onions is not sufficient to meet the demand for more than two days. Given the lower onion production domestically, the imports are not enough to bring down prices.

The landed cost of imported onions back in September was around Rs 30-40 per kg. With additional costs like packing, handling, and transportation, the retail price of imported onions will rise to Rs 50-60 per kg. But since the landed cost has increased to Rs 50-60 per kg, by the time the imported onion reaches the retail markets, it will cost around Rs 80-90 per kg, defeating the very purpose of resorting to imports. Imposing lower stock limits was aimed at ensuring constant movement of the bulb so that traders were not able to hike prices by creating an artificial shortage.

But with onions trading at over Rs 60-70 per kg in wholesale markets, trade sources said no trader would store such high-value produce. Storing it would require expenditure on security and for traders, it would make more sense to sell the product as soon as they procured it.

That’s why, even with such strict stock limits, onion prices have failed to come down in wholesale markets.

The way forward

According to officers of the Union agriculture ministry, onion prices will remain high for some time. The late Kharif crop in Maharashtra was badly hit by the unseasonal rain which lashed the state late in October.

While some price correction is expected to happen in the days to come, prices will fall significantly once the rabi crop hits the markets. This is expected to happen after February, so onions are going to make eyes water for at least some time.

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First published on: 16-12-2019 at 11:01 IST