)
After a brief lull, onion prices are again on the boil, touching a high of about Rs 80 a kg in the national capital and other parts of the country.
The government is again attributing the rise to hoarding by farmers and traders and transport disruptions due to unseasonal rains. To control prices, it is considering a ban on exports. It has also planned a meeting of senior officials from all onion-growing states later this month.
But despite all efforts, onion is perhaps the only commodity that sees such price fluctuations. And, this might continue in the near future.
So far this year, the monthly average retail prices of onions have fluctuated between Rs 19 a kg and Rs 55 a kg. In 2012, it had touched a year's high of Rs 23 a kg, before falling to Rs 12.5 a kg. In 2011, prices moved between Rs 11 a kg and Rs 50 a kg.
| ALL IN A DAY |
|
Therefore, the spike in retail prices of onions, preceded by a decline in rates, isn't new; onion prices have been volatile for some time. However, what has changed since 2009 is the extent of the fluctuation. Data sourced from the department of consumer affairs show in Delhi and Lucknow, prices have risen or fallen Rs 20-30 a kg in retail markets within just a few weeks. What makes them fluctuate so widely?
For one, the demand for onions is one of the most inelastic. In other words, unlike cabbage, brinjal, or even potato to an extent, the onion doesn't have a substitute. Therefore, even a small change or disruption in supply leads to a sharp rise in retail onion prices.
"There is no switch factor for the onion; either you have it, or you don't. This makes its demand absolutely inelastic," Ashok Gulati, chairman of the Commission for Agricultural Costs and Pricestold Business Standard.
Citing an example, he said though the prices of cauliflowers were ruling at Rs 80-100 a kg in retail markets, there was no hue and cry about it, as this vegetable could be supplemented. The onion is also one of the most globally aligned commodities among all vegetables produced in India---about 10 per cent of the country's annual produce is exported.
Ramesh Chand, director of National Centre for Agriculture Economics and Policy Research, says, perhaps, onion is the only crop produced four times a year; therefore, there are no extended periods of glut or shortage. "Onion prices do not rise for long; neither do these fall sharply for a long time, as there is no single bulk-producing season, which makes it volatile, unlike other crops except, perhaps, the potato," he said.
In Maharashtra and some parts of Gujarat, the onion is harvested four times a year - in August-September, October-December, January-March and finally, April-May. In Karnataka and Andhra Pradesh, the crop is harvested in July-September, October-November and March-April.
So, the crop is practically grown in the early-kharif, kharif, late-kharif and rabi seasons.
This peculiar characteristic is exploited to the hilt by all in the entire onion value chain---farmers, wholesalers and even the neighborhood hawker.
The situation becomes acute whenever there is 'expectation of scarcity', as seen earlier this month. Now, one is seeing the same situation again - a sudden disruption in supplies to Lasalgaon in Maharashtra (India's biggest and possibly the only wholesale market for onion) encouraged everyone in the value chain to exploit market conditions.
Imperfect markets
About 80 per cent of the country's onion prices are determined by 10-15 major traders controlling 15-20 major markets in Maharashtra's Nashik-Lasalgaon belt. It is they who determine when to stop supplies and when to release stocks. R P Gupta, director of Nashik-based National Horticulture Research and Development, says since 2004, when the onion was removed from the list of essential commodities, there has virtually been no control on onion trade.
He said this year too, there was no shortage of onions; it was a slight disruption in supplies that had been exploited to the hilt by a small group of traders, and this had raised prices in retail markets in Delhi to about Rs 80 a kg.
"In 2012-13, India's onion production was 16.3 million tonnes (mt), while the demand was expected at 12 mt - 4.3 mt were surplus. Assuming India exports two mt of onion this year, there should still be 2.3 mt of surplus onions in the country.
"The question is where have these onions gone?" asks Gupta.
On the nature of cartelisation in onion trade, a senior officer said because of good rains in the primary onion-growing belt of Maharashtra and Karnataka, all stakeholders in the value chain expected prices to soften from mid-September.
To cash in on the limited window of opportunity, as the last crop came in late, traders started squeezing onion supplies from June, which resulted in a massive price spiral around mid-August and mid-September and, subsequently, from October 18. A sudden burst of rains in the main growing belts around early October, which disrupted supplies, proved beneficial for the cartels.
"Otherwise, how would someone explain an almost Rs 13/kg fall in wholesale prices of onions in Lasalgaon in just one day - between September 19-20? Surely, this is not production-driven," the official said, adding the entire onion value chain was driven by a few traders and wholesalers.
Perhaps, onion is the only commodity that doesn't lose market value after storage. In other words, even if the crop is stored for seven-10 days, it does not lose value and isn't damaged; therefore, there is greater tendency to hoard.
The road ahead
As a commodity, onions would continue to remain a pain, unless proper policies to stock and import are framed. Gulati says, "In the short and medium term, we must have a buffer stocking policy for onions." In other words, every year, some amount of onions could be kept in major consuming centres as stocks; whenever supply is short, it can be augmented immediately.
Another option is a different trade policy - importing onions in big quantities in a short time so that demand is met.
The question is who will bell the cat?
In the long term, India should have a strong vegetable processing sector, one that enables conversion of fresh vegetables into processed items for use during a shortage. "As with tomatoes in some countries, the case should be the same for onions in India," Gulati says.
Chand advocates building good storage facilities across the country.
Till then, onion prices would continue to haunt all---farmers (when prices crash) and consumers (when prices rise) alike.
"This is not the first time we have experienced price volatility in onions and surely, it wouldn't be the last," sums up Gulati.
