Onion price shocks are hitting India frequently and they are getting severe. It is ironical that sharp price spikes are experienced almost every third year despite impressive growth in onion production in the country which has risen from below 5.5 million tonnes till 2002-03 to above 19 million tonne in the recent years. The country experienced annual growth rate of above 13% in onion production during the last 13 years since 2000-01. No other food crop in India shows this type of spectacular growth in the recent years. However, domestic and overseas demand for onion seems to be outpacing growth in supply. Per capita availability of onion has increased from 4.0 Kg in year 2002-03 to more than 13 Kg in recent years, showing an increase of 12 per cent every year. This growth in per capita demand for onion reflects mind boggling change in preference of Indian consumers for onion. It also implies that the effect of spikes in onion price on household budget is getting heavier. It looks strange that increased availability is associated with increase in price volatility rather than providing flexibility to absorb small shocks in supply.
Despite a very sharp increase in per capita availability of onion, its real price has been moving on a rising, though fluctuating, trend. Large expansion of eating joints, outside eateries, snack corners, restaurant in the recent years, use of onion in various snacks has added considerably to increase in per capita onion consumption as onion is the main and strong ingredient for attracting consumers to spicy food. Rising preference for onion also seems to be becoming more rigid making it highly inelastic to price changes. Demand for onion has assumed the nature of necessity like staple foods. Further, India consumers have very strong preference for fresh onion. Thus, small variation in production results in disproportionately large variation in prices. Important changes have taken place on supply side also. Onion area and production has seen increased concentration in a few states which also affects intra year supply behavior.
Till recently, any abnormal rise in onion price was attributed to unfavorable weather and exploitation of situation by traders and so called cartelization, hoarding etc. and it was forgotten when prices rolled back to normal. Absence of effective response to onion price shocks in the past indicates that such shocks were treated as inevitable rather than seeking a solution to avoid their recurrence.
Past price trends show a clear pattern in price spikes and high prices rule only for a few months. This implies that excessive volatility in prices can be managed through appropriate mechanisms. Any such mechanism that check steep rise in onion prices will be of great relief to the consumers.
The primary factor for triggering abnormal hike in prices is production shock generally caused by weather related events. Studies show that this situation is aggravated by further exploitation by a section of traders and middlemen through stocking and market manipulations. Discussion with various experts and stakeholders reveals that multi pronged strategy involving technology, extension, public stocks, and market intelligence is needed to address excessive volatility in onion prices.
In order to reduce effect of weather shock, concentration in area under onion cultivation in six states need to be diluted by promoting onion cultivation in other states like Uttar Pradesh. Other possibility is to popularize onion production in kharif season. These changes will require suitable varieties for new areas. Some varieties are already available but they need further improvement. ICAR and other research organizations and private sector R&D firms has important role to play in it. Efforts will also be needed from extension agencies of states and central government to take these technologies to farmers.
The second option for stabilization is stocking of onion by public parastatals. Besides Central agency like NAFED, state level agencies should also be involved in stock holding to hold larger volume and to have larger coverage of stabilization. Beside physical stabilization it will also keep check on exploitation and market manipulation by private trade. Stabilization through trade is other option but it will be costly and limited as India itself is a major onion exporting country.
Storage infrastructure for horticultural commodities in the country is awfully low and the available cold storage capacity is used mainly for potato. Stabilization of onion prices will require creation of storage capacity to meet specific requirement of humidity and temperature. Public agency like Directorate of Economics and Statistics in Ministry of Agriculture and farmers Welfare should constantly monitor crop area, condition and prices to know about the undercurrent and evolving market changes. It should also develop reliable price forecast model and come with early warning system to enable government to take appropriate measures in advance like procurement, regulating export, arranging imports and putting check on hoardings.
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