Rains may defeat govt's efforts to calm onion prices quickly

The goverment efforts to quickly calm soaring onion prices are unlikely to succeed as heavy rains have damaged the crop and delayed harvesting, a worry for the ruling Congress party which is struggling to control inflation as elections loom.

Retail prices of onions have quadrupled in some cities over the past three months and have helped push inflation to a seven-month high of 6.46% in September, prompting the central bank to hike interest rates.

Indians eat their way through 15 million tonne of onions a year, using them as the base for curries and traditional dishes such as biryani and bhaji. In the past, higher onion prices have contributed to the fall of state governments.

Elections in the states of New Delhi, Rajasthan, Madhya Pradesh, Chhattisgarh and Mizoram, seen as a warm-up for the national elections slated for 2014, kick off in November.

Last week, food and farm ministers said onion prices would come down in two to three weeks but this may not come to pass as four key onion-growing states have received heavy crop-damaging rains since then, in some areas 10 times more than normal.

Andhra Pradesh, Karnataka, Maharashtra and Odisha account for more than half of the country's total onion output.

"The heavy rainfall would delay harvesting by a few days. It might have damaged 5 to 10% of the crop," R P Gupta, director at the National Horticultural Research and Development Foundation (NHRDF), told Reuters.

This may keep onion prices elevated, which are currently more expensive than apples and oil in India. In some cities, onions were being sold for over Rs 80 per kg, compared with Rs 20 three months ago.

"Supply from the summer-sown crop has started, but it is nearly half compared to last year," said Vilas Bhujbal, a trader based at Pune in Maharashtra, India's top onion producing state.

"Rains have hurt the development of bulbs, their size is smaller than usual. Farmers are reporting lower yields."

NEW CROP SUPPLY

While Gupta from NHRDF expects supplies to improve from next week, the trader from Pune said it would not be enough to trigger a hefty price correction.

On Tuesday, average prices at the country's largest wholesale onion trading hub in Lasalgaon, Maharashtra, were Rs 3,500 per 100 kg, nearly three times more than last year.

Even after new season supplies, the price is unlikely to fall below Rs 3,000 in November, Bhujbal said.

Farmers have cultivated onions on more land, but supplies will rise substantially only from December, said Changdev Holkar, a director at the National Agricultural Cooperative Marketing Federation.

"From December onwards prices would start falling. They might fall sharply in January and February, but for next few weeks we have to cope with higher prices."