A recent spike in onion prices and the subsequent government action of first banning the export of the bulbous vegetable only to be lifted within 11 days after that has once again brought into focus all that is fundamentally wrong with marketing of agriculture produce in India. It has shown open a wide disconnect between farm gate and retail prices, mainly of fruits and vegetables.
Onion prices started rising between June and August for the second time in less than a year’s span when rates in the retail markets jumped by almost Rs 10-15 per kilogram between the three monsoon months. The reason was erratic rains in the early part of the monsoon season in Maharashtra, Karnataka and Gujarat. The below-par rains not only pulled down the inion production, but also delayed the harvest of the remaining crop.
Officially, this led to a drop in the total production of onions in the country during the kharif season to 3.3 million tonnes — around 30 per cent less than last year’s 4.7 million tonnes.
Onion, which is normally cultivated three times a year — in kharif, late kharif and rabi — gets bulk of the supplies from Maharashtra, Karnataka and Gujarat. This time, the harvest got slightly delayed, prompting traders to hoard the remaining crop, according to officials. This, they say, added on to the already rising prices.
As the situation looked getting out of control, the government first raised the minimum export price (MEP) of onions from $300 per tonne to $475 per tonne in one go. That was meant to curtail exports and improve domestic supplies. Then, within a day of raising the MEP, there was a ban on the exports.
All this was done to bring down the retail prices. The move did have a sobering impact on wholesale prices, but retail prices continued to remain stubbornly high.
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The move to stop exports didn’t seem to have the desired result as traders and farmers in Maharashtra, which supplies bulk of the onion to the country, went on a flash strike. That further scuttled the already low supplies and added on to the price spiral. Interestingly, data sourced from the department of consumer affairs department shows that wholesale price of onions dropped on the one hand after exports were banned, but retail prices rose as farmers and traders stopped selling onions in protest.
The gap between wholesale and retail price of onion in Delhi markets jumped from Rs 11 per kilogram on August 30 to Rs 16 per kilogram on September 12, data shows. The difference, which in an ideal scenario should not be more than 25-30 per cent, further got accentuated.
This clearly shows how an undeveloped marketing infrastructure in agriculture commodities prevented the benefits of a policy decision from percolating down.
Of course, that the farmers and traders in Maharashtra had stopped selling onions did have an impact on the supplies and there on to prices, but it would not have been as worse as it became.
Surprisingly, data shows that retail prices of onion in fact started falling after the ban on exports was lifted on September 20. In Delhi, prices dropped by around Rs 2 per kilogram, while in Chennai it fell by Rs 2 per kilogram.
Onion prices which were till then rising sharply showed signs of moderation for the first time in more than three months once the ban on exports was lifted.
Experts say the divergence between wholesale and retail markets in India, which is further deepened by the multiple layers of wholesalers and middlemen, was evident in full force during the current crisis in onions.
The mark-up between the price at which the farmers sells their produce and the rate at which an end-consumer purchases it rose to almost 70 per cent during the crisis. In a perfect market, it should not be more than 30 per cent.