Why falling prices of onions and potatoes are distressing farmers

Prices of these three commodities have seen perhaps the wildest fluctuations in agriculture commodities among all crops for multiple reasons

Onion and potatoes, part of the famed TOP trilogy (along with tomatoes) are once again in the news.

The yearly ritual of price spikes and drops surprisingly refuses to go this time despite multiple efforts and a litany of measures.

According to data from the department of consumer affairs, onion prices in the wholesale markets of Delhi, as on March 7, were quoted around Rs 1,000 per quintal. This is a drop of around 26 per cent in little over a month. Similarly, wholesale prices of potatoes at Delhi markets were around Rs 800 per quintal, a fall of around 20 per cent in just over a month.

Tomato prices were slightly better, up just over 6 per cent in a month.

Prices in the main producing onion and potato centres are even worse with farmers complaining of not being able to fetch even their bare minimum cost of production leave alone making any profit.

In some places, videos show farmers ploughing potato crops back into the fields as they lose hope of getting tangible returns from the produce.
 

The reasons

Prices of these three commodities have seen perhaps the wildest fluctuations among all crops for multiple reasons.

Prime among them are limited centres of production and growing consumption. Another reason — perhaps the most important one — is limited modern processing and storage facilities. So, when prices are down, farmers prefer to let their produce rot and go to waste. They do not store it for future use or processing.

“The storage of onion is challenging as the majority of the stock is stored in open ventilated structures (chawl) in the open fields. This storage has its own challenges. Therefore, there is a need for scientific cold-chain storage, which is under trial for the longer shelf life of onions. The success of such models will help in avoiding price jerks as witnessed recently,” an official statement issued on Tuesday said.

Improper storage also means that according to some estimates, every year around 25-40 per cent of the onion produced goes waste. According to some studies, till a few years back, it was estimated that around 5.8-18 per cent of fruits and vegetables got wasted every year. This was for a variety of reasons, among them being improper storage.

In such situations, the only option available to prop up prices is effective government intervention through agencies like Nafed. But, here, too, disposal of procured onions is problematic for the agencies.

During the recent crisis, according to the ministry of agriculture, Nafed swung into action and procured around 4,000 tonnes of onions since February 24, thereby helping in stabilising the prices somewhat.

It opened 40 procurement centres where farmers can sell their stock and get payment online. This was moved to the consuming centres of Delhi, Kolkata, Guwahati, Bhubaneshwar, Bengaluru, Chennai, Hyderabad and Kochi to cool down prices.
 

Bumper harvest

Onion production has risen from below 5.5 million tonnes till 2002-03 to almost 32 million tonnes in 2022-23.

Seldom has any crop grown at such a staggering pace in India in recent times.

Studies show that between 2002-03 and 2012-13, per capita availability of onion increased from 4 kg to 12.6 kg. This is a rise of 12 per cent every year.

This growth in per capita demand for onion reflects the mind boggling preference of Indian consumers.

Huge expansion of eating joints, outside eateries, snack corners and restaurants in recent years has added considerably to increase in the per capita onion consumption.

Due to its perishable nature and gap between the rabi and kharif crops, the prices of onion tend to increase during the lean months of September-December, while it falls thereafter.

Since the last few years, to stabilise prices, the Centre maintains a buffer stock of around 2-2.5 million tonnes of onions, which is released whenever prices rise. Onions also suffer from low price elasticity to demand.

A paper by eminent agriculture economist Ramesh Chand — quoting an NCAER report and released a few years back — showed that elasticity of demand for onion is as low as 0.1.

This implies that a 10 per cent increase in price can result only in 1 per cent decline in demand for onion.

This also implies that a 10 per cent shortfall in onion supply causes a 100 per cent increase in its price. The reverse could also be true when supplies rise as has been the case in the current price drop.

In the case of potatoes, bumper production and overflowing storages from last year’s crop are causing demand destruction leading to drop in prices.

Operation Greens

In the Budget of 2018-19, the Centre launched the Operation Greens scheme on the lines of Operation flood with an outlay of Rs 500 crore.

The objective of the scheme was to stabilise the supply of the TOP crops and control their price volatility.

The scheme has multiple components that includes the ministry of food processing providing a 50 per cent of the subsidy, through NAFED. This is to empanelled agencies for evacuation of TOP crops from surplus areas when the price falls below the three-year average market price. It also includes transportation of TOP crops from production to storage and renting appropriate storage facilities for these crops.