An official with the consumer affairs department said that while the stored rabi onion lasts till kharif crop arrivals in November, even a fortnight of delay creates supply constraints in the market, and leads to a spike in prices.
After a huge spike in onion prices few months ago, followed the familiar government response of banning exports, placing import orders and tinkering with stock holding limits of traders. Such reactions by successive governments, in the last two decades, have become the norm, especially during September-December period.
In November 2019, when retail prices of onion in several places touched Rs 200 a kg, the central government took several measures such as fixing stock holding limits for the traders, ordering onion imports from Turkey and Egypt and selling subsidised stored onions through few retail channels. The government had stopped onion exports on September 30, 2019.
Now, a few months after the huge increase in onion prices, the government’s own assessment says, there is expected to be a glut effect on the price by March 2020. “Significant decline in price is expected from February onwards when late kharif and early rabi arrivals start picking up pace. From mid-March onwards, a glut is likely to develop”, an official assessment of the onion supply situation has stated.
The key cause behind the huge spike in onion prices is the close-to-a-million-tonne reduction in kharif and late-kharif output in Maharashtra, which produces around one-third of the country’s output, because of prolonged monsoon last year resulting in crop damages. “Even Karnataka and Gujarat have witnessed significant rain-related crop damages. Rajasthan’s Alwar district, which is an onion producing hub, was affected by dry conditions resulting in lower area and yield”, the official note has stated.
Delayed monsoon (upto to first week of November) has had an impact on the output. Overall kharif and late-kharif output is estimated to have declined by more than 27% to 4.83 million tonne (MT) in 2019-20 from 6.63 MT in previous year. Maharashtra reported a production of 2.43 MT in 2019-20 in kharif and late-kharif compared to 3.41 MT in 2018-19.
“The rains during September-October also affected transportation of the crop from these regions to consuming areas. This led to limited availability of kharif onion in the market and put pressure on its prices”, Danve Raosaheb Dadarao, minister of state of consumer affairs, food and public distribution said in Lok Sabha last month.
However, the forthcoming rabi or winter crop is likely to be much better due to better water availability and increased sowing by farmers owing to high prevailing prices. According to an official assessment, ‘rabi onion acreage is set to increase by 5% to 10% in key producing states, including Maharashtra, as the moisture level has been adequate post extended monsoon addition, the high prices will encourage more sowing’.
About 30% of the total onion output is during kharif and late kharif season, and rest is during rabi season. This ensures onion availability throughout the year. The harvesting of kharif and late-kharif is carried out during November-January while rabi crops arrives in the market during January-May. The rabi crops are stored, which takes care of supplies till the kharif harvests arrive in the market.
An official with the consumer affairs department said that while the stored rabi onion lasts till kharif crop arrivals in November, even a fortnight of delay creates supply constraints in the market, and leads to a spike in prices. The official said that a decline of 27% in kharif output could not have been replaced with imports from Egypt and Turkey.
We may recall that, a decade back, the government had asked the Competition Commission of India (CCI) to conduct an inquiry into unusual spike in onion prices in December 2010-January 2011. CCI had closed the inquiry due to absence of any evidence of collusion or cartelisation among the traders, or Commission agents or any other players in the supply chain.
Subsequently, a study in the competitiveness in the major onion markets—Maharashtra and Karnataka—titled Competitive Assessment of Onion Markets in India was conducted by the Agricultural Development and Rural Transformation Centre, Institute for Social and Economic Change, Bengaluru, for the CCI in 2011. The study stated that market structure of onion is unilaterally dictated by the traders, not farmers. The reason being the minimal role farmers play in price discovery due to the low size of average farm holdings—1.15 to 1.3 acres—and unfavourable weather conditions and price risk.
The study had suggested, among others things, having a better system for forecasting total production considering economic and meteorological events, at least in major onion producing area. This would help in taking appropriate decisions about onion export.
Meanwhile, the onion price in Lasalgaon, Nasik, the country’s wholesale onion market, had dropped to Rs 3,500 per quintal as against a record-high of Rs 8,000 reported a month back. The consignment of onion stocks imported by MMTC from Egypt & Turkey have started to arrive in the country during the last two weeks, thus, increasing supplies in the domestic market.
As reported earlier (bit.ly/2rZAh2I) in 2015, the government will find it difficult to dispose off imported onion from Egypt and Turkey because of its lack of pungency which does not attract the consumers. In 2019 also, the government’s customary knee-jerk reaction to go for imports will results in huge losses.
If the government really wants to deal with spike in onion prices next year, it must take up a couple of measures, promoting usage of dehydrated onions (flakes or powder) in the domestic market as well as the institutional buyers such as hotels, restaurants and army.
Instead of reacting to spike in prices, the government agencies must provide some advance information on the stock available and likely impact on the prices, besides building up a buffer from the rabi crops. The bottom-line is that agricultural commodities are often subject to price volatility, thus, instead of knee jerk reactions, the government must prepare itself in advance for spike in prices.
Author is Senior consultant, ICRIER. Views are personal.