 "The Onion Conundrum")
Picture this -- the monthly average price of onions ranged between Rs 11.50 and Rs 25 a kg in retail markets of Delhi in 2010. In 2011, prices of the the same commodity moved between Rs 11and Rs 50 a kg, the very next year it touched a year high of Rs 23 and low of Rs 12.50 per kg. Average monthly retail prices have oscillated between Rs 15.50 and Rs 61 a kg till September 25 in 2013.
In other words, the current spike in retail prices of onions which were preceded by a decline in rates is nothing new. Rather, onion has been among the most volatile commodities for some time. However, what has changed has been the extent of price fluctuation since 2009.
Data sourced from the department of consumer affairs shows that in some cities like Delhi and Lucknow, onion prices have moved up and down by almost Rs 20-30 per kg in the retail markets in a span of just few weeks.
So what makes prices of the onion fluctuate so widely, unmatched by other vegetables like cauliflowers, brinjals etc.
For one, onion perhaps has one of the most inelastic demands. In other words, unlike cabbage, brinjal or even potato to some extent, onion as a vegetable does not have a substitute and has a fixed demand which does not change much. Therefore, even a small change or disruption in supplies leads to sharp spike in onion prices of at the retail level.
“There is no switch factor in onion, either you have onion or do not have, which makes its demand absolutely inelastic,” eminent agriculture economist and chairman of Commission for Agriculture Costs and Prices (CACP) Ashok Gulati told Business Standard. Citing an example, Gulati said price of cauliflower is also ruling at around Rs 80-100 per kg in the retail markets currently, but there is no hue and cry as it can be supplemented, while onions cannot be.Onion is also one of the most globally aligned commodities among all vegetables produced in India as almost 10% of the country’s annual produce is exported.
Ramesh Chand, director of National Centre for Agriculture Economics and Policy Research (NCAP) says, onion is perhaps the only crop which is produced four times in year and therefore there are no extended periods of glut or shortage.
“Onion prices do not rise for long, neither do they fall sharply for long time as there is no single bulk producing season, which makes it volatile, unlike other crops except perhaps potato,” Chand said.
In Maharashtra and some parts of Gujarat, onion is harvested four-times in a year-- in August-September, then in October-December, thereafter again in January-March and finally around April-May. In Karnataka and Andhra Pradesh, the crop is harvested around July-September and then again in October-November and finally around March-April.
So practically, the crop is grown in early kharif, kharif, late kharif and rabi seasons..
This peculiar characteristic of onion is exploited to the hilt by all the players in entire value chain of onion, be it farmers, wholesalers and even the neighborhood hawker.
The situation becomes all the more acute whenever there is ‘expectation of scarcity’. This happened earlier this month, when a sudden disruption in supplies to Lasalgaon in Maharashtra (India’s biggest and probably the only wholesale market for onion) encouraged all the actors in the value chain to exploit the market conditions.
IMPERFECT MARKETS
More than 80% of the country’s entire onion price is determined by 10-15 big traders who control the 15-20 major markets situated in the Nasik, Lasalgaon belt of Maharashtra. It is they who determine when to stop supplies and when to release stocks. As R.P. Gupta, Director of Nasik-based National Horticulture Research and Development said since 2004, when onion was removed from the list of essential commodities, there has been virtually no control on the onion trade.
He said this year, too, there is no shortage of onions in the country and it is the slight disruption in supplies which has been exploited to the hilt by the small group of traders, which pushed prices in some retail markets like Delhi to around Rs 70 per kg on September 20 from Rs 53 per kg on September 5.
“In 2012-13, India’s onion production was around 16.3 million tonnes, while the demand is expected to be around 12 million tonnes, which means around 4.3 million tonnes were surplus. Assuming that India exports around 2 million tonnes of onion this year, there should still be 2.3 million tonnes of onions in surplus in the country.
“The question is where has this onion gone,” asks Gupta.
Explaining, the nature of cartelization in onion trade, another senior officer said that because of good rains in main onion growing belt of Maharashtra and Karnataka, all the stakeholders in the onion value-chain expected prices to soften from middle of September.
To cash on the limited window of opportunity as the last crop came in late , traders started squeezing onion supplies from June onwards, which finally escalated in a massive price spiral first around middle of August and then again in middle of September.
“Otherwise, how would someone explain an almost Rs 13 per kg fall in wholesale price of onion in Lasalgaon in just one day between September 19-20. This surely is not production driven,” the official said. He said the entire value-chain in onions is driven by a few traders and wholesalers.
Also, onions perhaps are the only commodity which does not lose market value after storing. In other words, even if the crop is stored for 7-10 days, it does not lose its value and does not get damaged, therefore there is greater tendency to hoard.
THE WAY FORWARD
Onions as a commodity will continue to remain a pain unless and until either proper stocking or import policies framed. As Gulati said," in the short and medium term we must have a buffer stocking policy for onion."
In other words, some amount of onions could be kept in major consuming centres as stocks every year, so whenever there is short supply it can be immediately augmented.
The other option is trade policy, by importing onions in big quantities in short time so that demand is met.
“But, both these methods require funds as in the first case government will have to bear the cost of storing and in case of imports it will have to reimburse as international prices will move up as soon as India starts importing,” Gulati said. The big question is who will bell the cat.
In the long-term, India should have a strong vegetable processing sector, which will enable fresh vegetables get converted into processed items for use during shortage. “Just like in tomatoes in some countries, the same should be done for onion in India as well,” Gulati said. Chand of NCAP advocates building good storage facilities across the country to store onions.
Till that happens, onion prices will continue to haunt all, be it farmers when they crash and consumers when they spike. As Gulati summed it up--this is not the first time we have experienced a price spiral in onions and surely this is not the last.
In other words, the current spike in retail prices of onions which were preceded by a decline in rates is nothing new. Rather, onion has been among the most volatile commodities for some time. However, what has changed has been the extent of price fluctuation since 2009.
Data sourced from the department of consumer affairs shows that in some cities like Delhi and Lucknow, onion prices have moved up and down by almost Rs 20-30 per kg in the retail markets in a span of just few weeks.
So what makes prices of the onion fluctuate so widely, unmatched by other vegetables like cauliflowers, brinjals etc.
For one, onion perhaps has one of the most inelastic demands. In other words, unlike cabbage, brinjal or even potato to some extent, onion as a vegetable does not have a substitute and has a fixed demand which does not change much. Therefore, even a small change or disruption in supplies leads to sharp spike in onion prices of at the retail level.
“There is no switch factor in onion, either you have onion or do not have, which makes its demand absolutely inelastic,” eminent agriculture economist and chairman of Commission for Agriculture Costs and Prices (CACP) Ashok Gulati told Business Standard. Citing an example, Gulati said price of cauliflower is also ruling at around Rs 80-100 per kg in the retail markets currently, but there is no hue and cry as it can be supplemented, while onions cannot be.Onion is also one of the most globally aligned commodities among all vegetables produced in India as almost 10% of the country’s annual produce is exported.
Ramesh Chand, director of National Centre for Agriculture Economics and Policy Research (NCAP) says, onion is perhaps the only crop which is produced four times in year and therefore there are no extended periods of glut or shortage.
“Onion prices do not rise for long, neither do they fall sharply for long time as there is no single bulk producing season, which makes it volatile, unlike other crops except perhaps potato,” Chand said.
ALSO READ: The onion diaries
In Maharashtra and some parts of Gujarat, onion is harvested four-times in a year-- in August-September, then in October-December, thereafter again in January-March and finally around April-May. In Karnataka and Andhra Pradesh, the crop is harvested around July-September and then again in October-November and finally around March-April.
So practically, the crop is grown in early kharif, kharif, late kharif and rabi seasons..
This peculiar characteristic of onion is exploited to the hilt by all the players in entire value chain of onion, be it farmers, wholesalers and even the neighborhood hawker.
The situation becomes all the more acute whenever there is ‘expectation of scarcity’. This happened earlier this month, when a sudden disruption in supplies to Lasalgaon in Maharashtra (India’s biggest and probably the only wholesale market for onion) encouraged all the actors in the value chain to exploit the market conditions.
IMPERFECT MARKETS
More than 80% of the country’s entire onion price is determined by 10-15 big traders who control the 15-20 major markets situated in the Nasik, Lasalgaon belt of Maharashtra. It is they who determine when to stop supplies and when to release stocks. As R.P. Gupta, Director of Nasik-based National Horticulture Research and Development said since 2004, when onion was removed from the list of essential commodities, there has been virtually no control on the onion trade.
He said this year, too, there is no shortage of onions in the country and it is the slight disruption in supplies which has been exploited to the hilt by the small group of traders, which pushed prices in some retail markets like Delhi to around Rs 70 per kg on September 20 from Rs 53 per kg on September 5.
“In 2012-13, India’s onion production was around 16.3 million tonnes, while the demand is expected to be around 12 million tonnes, which means around 4.3 million tonnes were surplus. Assuming that India exports around 2 million tonnes of onion this year, there should still be 2.3 million tonnes of onions in surplus in the country.
“The question is where has this onion gone,” asks Gupta.
Explaining, the nature of cartelization in onion trade, another senior officer said that because of good rains in main onion growing belt of Maharashtra and Karnataka, all the stakeholders in the onion value-chain expected prices to soften from middle of September.
To cash on the limited window of opportunity as the last crop came in late , traders started squeezing onion supplies from June onwards, which finally escalated in a massive price spiral first around middle of August and then again in middle of September.
“Otherwise, how would someone explain an almost Rs 13 per kg fall in wholesale price of onion in Lasalgaon in just one day between September 19-20. This surely is not production driven,” the official said. He said the entire value-chain in onions is driven by a few traders and wholesalers.
Also, onions perhaps are the only commodity which does not lose market value after storing. In other words, even if the crop is stored for 7-10 days, it does not lose its value and does not get damaged, therefore there is greater tendency to hoard.
THE WAY FORWARD
Onions as a commodity will continue to remain a pain unless and until either proper stocking or import policies framed. As Gulati said," in the short and medium term we must have a buffer stocking policy for onion."
In other words, some amount of onions could be kept in major consuming centres as stocks every year, so whenever there is short supply it can be immediately augmented.
The other option is trade policy, by importing onions in big quantities in short time so that demand is met.
“But, both these methods require funds as in the first case government will have to bear the cost of storing and in case of imports it will have to reimburse as international prices will move up as soon as India starts importing,” Gulati said. The big question is who will bell the cat.
In the long-term, India should have a strong vegetable processing sector, which will enable fresh vegetables get converted into processed items for use during shortage. “Just like in tomatoes in some countries, the same should be done for onion in India as well,” Gulati said. Chand of NCAP advocates building good storage facilities across the country to store onions.
Till that happens, onion prices will continue to haunt all, be it farmers when they crash and consumers when they spike. As Gulati summed it up--this is not the first time we have experienced a price spiral in onions and surely this is not the last.