By Ishita Misra
Onion prices have spiked up to the range of Rs. 40-50 per kg in most retail markets in India. Closely monitoring the prices of onion, the Consumers Affairs Ministry has expressed concerns regarding the rising prices of onions. In order to boost supply and thereby decrease prices of onions, private traders imported 2,400 tonnes of the bulb from Egypt. The government also took steps to curb prices by asking states to impose stock limits on traders and is considering restricting exports by imposing a minimum export price. The government also indicated that it would facilitate more imports in the case that rates continue to increase.
Factors affecting onion prices
The spike in onion prices is mostly due to three factors: heavy rainfall in Gujarat, speculations of lowered and delayed crop in Karnataka, and procurement by the Madhya Pradesh government in 2016. Karnataka grows a small share of the onion kharif crop, which usually enters the market around August. Unfortunately, due to deficient rainfall, the harvest of the crop is expected to be delayed and down by at least 50 percent. Meanwhile, the heavy rainfall in Gujarat has reduced onion movement in the state, causing a delay in the crop from there reaching the market.
In 2016, India saw a bumper crop of onion and the resultant decline in prices to below production costs. As a consequence, farmers protested and forced the Madhya Pradesh government to procure onions at Rs. 8 per kg. Following the procurement, the government wiped out the excess supply from the system by dumping onions at Rs. 2-3 per kg. This led to a shortage in supply this yearas farmers were reluctant to grow the crop after facing losesand there was no surplus. The combination of these three factors led to shortages in the local onion crop and a hike in prices. However, the situation is expected to improve with the new onion crop from the 2017-18 kharif season arriving in the markets.
Controlling prices and the impact on exports
In an effort to control onion prices, the government has already asked states to impose a maximum limit on stocks of onions. This was done to increase the supply of onions in the market by ensuring that traders are not keeping huge reserves of onions to sell at a higher profit later. The lack of availability of the crop and increased prices has also led to a 14 per cent decrease in exports from 10.98 lakh tonnes last year to 9.45 lakh tonnes this year. In the AprilJune period of 2017, the total value of exports stood at Rs.1098.58 crore with one tonne of export priced at an average of Rs. 11,621.97. There is a possibility that the value of total exports might further decline as the government is considering imposing a minimum export price (MEP) to restrict exports. Restricting exports would compel traders to increase supply to domestic markets, which would, in turn, lead to a decline in domestic onion prices.
Consumers vs farmers
Due to actions such as imposing stock limits on traders, there is a widespread conception of government policies favouring consumers. Even though stock limiting was not very successful in controlling prices, the decision antagonised farmers who felt that the government did not care about their suffering when crop prices were stagnant at below cost of production for one-and-a-half years. In a bid to keep consumers happy, the government has been interfering in the market to keep a check on prices instead of focusing on the reforms of agricultural markets that have been pending for decades.
A simple analysis of the holidays declared by the Lasalgaon agricultural produce market committee in Nashik shows weak market structures in India. Even simple solutions like ensuring that markets remain open for farmers can greatly benefit the agriculture markets in a way that satisfies both consumers and farmers. Furthermore, reforming the agricultural markets would not only benefit domestic consumers and producers but will also make measures such as imposing MEP unnecessary while increasing Indian exports.
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