Onion prices have risen sharply and are expected to remain elevated till at least the next harvest in October. Sandip Das explains the factors behind the spurt in prices and what the government can do to rein them in
l Current price & production trends
ONION PRICES AT Lasalgaon in Nashik district of Maharashtra, the hub of the wholesale onion trade in the country, rose to `3000/quintal on Thursday from `2000/quintal prevailing a month back, mainly because of a reduced rabi (winter) harvest. The average retail prices of the key vegetable on Thursday was `40/kg, a sharp increase from `20/kg reported a year ago. The agriculture ministry has projected onion production for the 2023-24 crop year (July-June) at 25.47 million tonne (MT), a 16% drop from the output of 30.2 MT in 2022-23 due to patchy rainfall in the winter months. Retail inflation in onion was 38% year-on-year in May 2024 while prices rose by 86% in November 2023 year-on-year.
Traders say farmers are releasing the stocks in a calibrated manner in anticipation of higher prices as for the first time in the last three years they are realising better prices. While kharif (summer) sowing has been robust so far, onion prices are expected to remain elevated till the kharif harvest enters the market in October.
l Seasonality factor a key reason for price hike
THE RABI CROP is critical for the country’s onion supplies as it contributes 72-75% of the annual production. This rabi harvest is also crucial for ensuring year-round availability as it has a better shelf life due to less moisture content compared to the kharif onion. The rabi onion which is harvested in April is stored and meets the domestic demand till November. Experts say any delay in arrivals of kharif crops by the end of October results in a spike in prices.
Historically, most of the spike in onion prices have been reported during the October-December period. To increase shelf-life of onions, the department of consumer affairs in collaboration with Bhabha Atomic Research Centre has set up an irradiation facility in Lasalgaon on a pilot basis which reported reduced storage losses of 10% against the earlier 25%.
l Earlier market interventions
IN AUGUST 2023, onion prices had started to rise due to sluggish kharif sowing as delayed and scanty monsoon rains hit the key growing areas of Maharashtra and Karnataka. A spurt in prices were reported after nearly two years of stable prices because of bumper output. There had been no export restriction since January 2021 but in August 2023, the government imposed a 40% duty on exports and subsequently in October last year, a minimum export price (MEP) of $800/tonne was imposed to curb shipments. Onion exports were banned from December 2023; however it allowed shipment of around 0.1 million tonne of shipment to various countries including Bhutan, Bahrain, Mauritius, Bangladesh and United Arab Emirates. In May 2024, the government lifted the ban on onion shipment and imposed an MEP of $550/tonne and an additional 40% export duty on it. Last year, the government had also sold onion at `25/kg through various retail outlets from its buffer stocks.
l Options for the government now
CONSUMER AFFAIRS SECRETARY Nidhi Khare said availability of the key vegetable is not the issue as farmers are holding on to their stock in anticipation of a further spike in prices. The government is watching the supply situation closely and keeping all options open. Imposition of stock holding limit is not being considered as most stocks from the rabi harvest are held with the farmers and not traders, and the vegetable harvested in April cannot be stored beyond October. The central agencies – farmers’ cooperative Nafed and National Cooperative Consumers’ Federation of India (NCCF) – have procured nearly 0.3 million tonne (MT) of onions so far this fiscal for a buffer against the target of 0.5 MT and expect prices to moderate in the coming months with the progress of monsoon. The target for purchase for buffer stocks is likely to be met soon, officials said. This year, officials say, buffer stocks of onion will be offloaded in a calibrated manner.
l Onion prices a political hot potato
INDIA GROWS MORE than 30 MT of onions, making it the second-largest producer in the world after China. Overall production remains adequate to meet domestic demand. However, production and supply mismatch due to storage issues lead to spikes in prices intermittently which become a politically sensitive issue.
A ban on onion exports last year to control retail prices led to protests by farmers, especially in the Nashik belt where the National Democratic Alliance suffered losses in the recent elections. Although the government lifted the ban in the midst of the general elections in May, after levying MEP and export duty, it was a case of too little too late, thus angering farmers. Traders and farmers say they started to realise higher prices despite lower output, yet the government decision to lift the ban and allow exports with conditions did not lift the prices.