The govt’s response to the onion-price spike has been knee-jerk. Instead, it must beef up storage , junk the Essential COmmodities ACT & promote use of Dehydrated onions.
By Ashok Gulati and Harsh Wardhan
As onion prices crossed Rs 100/kg in several retail markets, the central government has started having sleepless nights over its failure to control the spiking prices. Interestingly, during this period, an old video of prime minister Narendra Modi, then Gujarat chief minister, criticising the UPA government for high onion price went viral on social media. The PM was recorded saying, “Now we have to open lockers for onions too, and keep the onions locked in the house, [and] when guests come, they should only be served with its fragrance… This government is capable of giving tears without onions. Look at their sins—their claws have snatched onions from India’s poor who used to survive by consuming bajra/wheat/jowar/maize rotis with onions. Those who have snatched away onions from the poor, there is a need to wipe away their sultanates from entire India.” Now, when he is in power himself and retail prices of onion have gone through the roof, PM Modi is silent. This shows that it is easy to criticise others, but policymaking is a tough job that requires humility, proper understanding of issues, resource-backing, and sustainable implementation of strategy. Here, we discuss how future fiascos relating to onions can be avoided.
But, let us first recount the journey of onion prices over the last few months. When retail prices touched `50-60/kg in September-October, the government imposed a minimum export price (MEP), put stocking limits on retailers and wholesalers, and then, finally, banned onion exports. However, when these measures failed to tame onion prices, even income tax raids were conducted on traders (see graphic). This only shows bankruptcy of ideas in policymaking. Such a situation has arisen almost every alternate year, but we have refused to learn. Then finance minister, late Arun Jaitley, had announced and allocated `500 crore for “Operation Green” in the 2018 Union Budget precisely to stabilise the prices of tomatoes, onions, and potatoes (TOP). The scheme was to be implemented by the ministry of food processing, but their website shows that the money has still not been released.
The current spike in onion prices could have been anticipated earlier. The horticulture statistics division had reported 7% lower kharif acreage compared to previous year (2.73 lakh hectare) in major onion growing states (Maharashtra, Karnataka, Madhya Pradesh, Andhra Pradesh, Gujarat, and Rajasthan). Due to heavy rains in September/October, almost 58% kharif onions in MP, 18% in Karnataka, and 2% in AP got damaged. Besides, continuous rains led to a delay in harvesting in Maharashtra. However, the government woke up late and directed MMTC to import 1 lakh MT of onions. With relaxed fumigation norms, onions are being imported from Afghanistan, Turkey, and Egypt. The question is, at what price will MMTC import and dump in Indian market.
India is already the largest exporter of onions in the world, with an average of 2 MMT of exports per year (see graphic). Instead of banning these, it is better to keep imports open, so that when domestic prices rise unduly, private trade can start importing, rather than waiting for the government to take a delayed decision. This way, India can remain a reliable global exporter, helping farmers get better prices on a sustainable basis. Abrupt export bans are anti-farmer and reflect the failure of government policy. To take care of consumers’ interests, India needs to build proper value chains, as envisaged under “Operation Green”.
So, how to safeguard the interests of farmers as well as consumers? First, storage facilities for rabi onions must be created on a massive scale, both at the farmers’ and traders’ ends. When onion prices were hovering around Rs 4-5/kg in April-May this year, the government could have purchased these at, say, `10/kg and stored them in modern private sector godowns. However, repeated stocking limits, and raids discourage private investments in modern cold storages. To encourage private storages, the Essential Commodities Act has to go, and if traders collude, let the Competition Commission of India (CCI)—and not income tax officials—look into this.
Second, the government needs to promote use of dehydrated onions (flakes, powder, granules) among urban households and bulk consumers (armed forces, hospitals, restaurants, etc). As onions are a sensitive commodity, the government should also keep a buffer stock of dehydrated onions, which have a much longer shelf life, especially since 1kg of the product equals 10kg of fresh onions; this is the right time to promote their use. Mahuva, in Gujarat, is already a hub for the dehydrated onion industry, with more than 100 storage units. However, with low international and negligible domestic demand, these units have a high pile-up of previous year’s stocks. On the contrary, Jain Irrigation emerged as the largest dehydrated onion company in India, engaging small and marginal farmers on contract. The price to be paid to growers is assured by the company even before planting. And, if the market price after harvest is higher than the assured price, farmers get a price that is 60 paise/kg less than the market price. Such models of contract farming reduce market risk, and need to be scaled up.
Third, small and marginal farmers should be organised into FPOs, and direct buying by organised retailers should be encouraged through contract farming, bypassing the mandi system. Additionally, market reforms, along with overhauling infrastructure of existing APMC mandis, are required. With more than 5.5 years in power, the Modi government has missed the golden opportunity of carrying out APMC reforms in the large number of states it ruled, and this opportunity is slipping further away from their hands by the day. Without that, the question of unified national markets, or stabilising price and fair price to farmers and consumers is mere talk.
It is time to wake up from the onion nightmare and work towards more sustainable solutions than taking ad-hoc knee-jerk measures.
Gulati is Infosys Chair Professor for Agriculture & Wardhan is consultant, ICRIER. Views are personal