Onion brings tears to consumer: Wholesale price triples under Modi govt

WPI-based inflation for onion December 2017 touched 197% in a year, tomato remained high at 136%

Wholesale prices of onion and tomato saw the highest rise under the incumbent National Democratic Alliance (NDA) government, with wholesale price index (WPI)-based inflation for onion touching 197 per cent over a year. This means onion prices almost tripled as on December 2017, while tomato remained high at 136 per cent, down from a peak of 270 per cent in November 2017. 

The previous peaks in WPI inflation for onion (375 per cent) and tomato (155 per cent) were observed in October 2013, months before the United Progressive Alliance vacated the government chambers (see chart 1). 

Retail prices of vegetables too rose the fastest in December 2017. Consumer price index (CPI)-based inflation for vegetables was 30 per cent under the NDA government. This situation of peaking vegetable inflation is very similar, but quite under control as of now, compared to September-October 2013 period, when consumer inflation for vegetables had touched 70% (see chart 2). 

This could very well be the reason Prime Minister Narendra Modi mentioned tomato, onion and potato—the three essential veggies in an Indian food plate—as his government’s ‘TOP’ priority in an election rally on February 5 in Karnataka, abbreviating their initials in one word.

Poll-bound Karnataka is the second-highest producer in India of both onion and tomato, making it imperative for political parties to assure better prices to farmers growing the vegetables.

While onion prices are expected to stabilise by May due to the combined effect of higher volume of arrivals expected and minimum export price lifted, they are expected to shoot up in the June-September 2018 period, agents in the vegetable supply chain said. 

Vegetables have a weight of 7.5 per cent weight in the CPI, while the weight of onion and potato in the WPI adds up to 2.3 per cent since it includes a range of other products which CPI doesn’t capture. Still, the impact on consumers is more than the figure represents, since vegetables are daily and mass consumption items, like fuel, economists from the National Statistical Commission confirmed. 

The heightened inflation is also in part due to base effects, meaning due to subdued prices last year.

Onion farmers in Lasalgaon, Maharashtra—the biggest onion market in India for onions—are happy, since the gains this winter made up for their loss in the last few years. “From a sense of the market, we expect better prices for farmers in the coming year especially when incomes of farmers and small traders are negative in last five to six years”, said Sourabh Sanap, on onion farmer and wholesaler in the town. 

“The first two onion crops of the year—kharif and late kharif—were sown on less area, and irregular monsoon affected the harvest and arrivals in market, which inflated the wholesale price,” P K Gupta, director are the national horticulture resesarch and development foundation told Business Standard.

“The rabi (winter) onion crop has been sown on a larger area this season. It will keep a good quantity of supply arriving till May, which will push wholesale price downward. But at the same time, recently scrapped minimum export price will most probably hold prices up”, Gupta added. 

Retail prices may remain high for a longer time, and with a lag, corresponding to the wholesale prices. The budget focuses on farmer producer organisations exactly for this very reason, to keep a check on retail prices, said Gupta.

Wholesale prices of onion remained between Rs 2,500-3,000 per quintal in the Belgaum market in northern Karnataka, yielding a better remuneration to farmers. Those for tomato were subdued in the range Rs 250-350 at Kolar, the highest tomato producing district of Karnataka. 

Daily consumption items, be it vegetables or fuel, have a greater impact on public perception about price inflation, experts say. Retail petrol and diesel prices have risen about 7-8 per cent on average in the four months since the cut in excise duties in October, and are making headlines with every small rise. This might have a bigger impact on perception of inflation than the actual inflation number.

In Union Budget 2018-19, the government allocated Rs 5 billion for ‘Operation Greens’, to promote farmer producer organisations, logistics, processing facilities and professional management in a bid to benefit both the producer and the consumer.  

“Prices of essential vegetables are rising due to increased costs owing to proliferation of grading and packing, increased labour costs and transport, too, due to rising diesel prices,” Brajendra Singh, deputy managing director at the national horticulture board told Business Standard.

Potato, however, has been an outlier compared to its two compatriots, as it had been in the 2013 upswing as well. WPI inflation for potato was minus 8% in December 2017. 

“Potato farmers are not getting remunerative prices this season across markets”, said Singh.