The government imposed a ban on the export of onion to control its domestic price. There are two reasons why onion prices, which had suddenly shot up, could not be left alone. One is that the poor eat onions and with onions becoming unaffordable, their nutrition levels would fall drastically as they would be forced to eat other things; maybe, even hunger could creep in. This would suggest that without such increases in the price of onions, the poor would have had a living acceptable to the non-poor and the privileged. The second reason, of course, is a very important one; experts have always maintained that governments fall if onion prices rise when elections are close by. Therefore, it was not surprising that the government clamped down on the export of onions, while the non-poor cheered, in the name of the poor. Let me explain, fully, the thought process behind such government actions.
It is widely held, among those who know, that this sudden price rise benefits only those who trade in onions but do not grow them. We, the non-poor, know that traders hoard onions, force prices up and then force people to buy all these onions at much higher prices. And, even when they do not hoard, the international price of onions often goes up, making it more profitable for domestic traders to sell in the international market and this also increases domestic prices. Moreover, we know that all this happens, by some unknown conspiracy, only after all the farmers have sold their onions at throwaway prices to the traders. In other words, farmers never get any benefit from these high prices. We, the non-poor onion experts, therefore, want the government to ban exports whenever onion prices go beyond levels unacceptable to us. And, we do this in the name of the countless Indian poor and to ensure that we achieve our millennium development goals on hunger and nutrition.
The rise in onion prices is a subtle, sophisticated conspiracy, which even the farmers are unaware of. It is triggered, as remarked upon earlier, only after the farmers have sold all their produce to traders. Even if the trigger jumps the gun and some farmers still have onions to sell, their poverty and irrationality prevent them from asking for higher prices from the traders for their produce. This is because of bad governance, lack of politicisation and the terrible effects of leaving farmers to the vagaries of the market. It is precisely to prevent the farmer from falling into the clutches of the traders that benevolent state governments have put in place various controls on agricultural produce in terms of who the farmers can sell their produce to, where they can sell it and at what price. And when they fail to implement what they want, the central government should step in with export bans. Finally, what is true of onions is true of most things the poor in India eat.
Actually, all this is only done for the poor in India. For example, when telecom operators got the 2G spectrum at throwaway prices from the government and then traded them away to foreign partners at ten times the price, the non-poor 2G experts never asked for such foreign sales to be banned. It is true that the government acted like the irrational onion farmer who forgot to ask for a higher price but then our government is not poor. After all, how many poor can suffer the losses made during the Commonwealth Games! And, unlike onions, the poor do not buy 2G spectrum and so none of our millennium development goals is affected by 2G traders buying cheap from the government and selling high to users of such spectrum.
Barring the connectivity to the poor, the two are similar in many ways. For example, onion traders can collude with international markets and among themselves because they can act as oligopolists; free entry is not allowed and you and I cannot decide to become traders simply because there is money to be made. In other words, there is no competition among traders to keep prices low to consumers and high to producers. Instead, it is the other way around. Similarly, 2G traders were an oligopoly because spectrum was not given out to competitive bidders but only to some chosen few and that kept the prices low for the government and high for those who bought it from these middlemen.
There are some sceptics who are losing their onions over such reasoning behind the export ban. They would point out that the reason for onion traders making high profits is that they are oligopolistic. If trading was competitive, speculation would not be possible and farmers would get price signals seamlessly. If they got the right price signals, they would respond with the correct choice of crops and increase availability of onions should the market heat up. And, should the export market suddenly become more lucrative, with competitive trading, some poor farmers would earn higher incomes and not commit suicide. And, the situation can be further improved if storage facilities are more widely available and onion can be freely traded in commodity exchanges. Controlling the market for storage facilities and what can and cannot be traded in exchanges is not the best way to help the poor onion farmer and it certainly does not keep prices low for the poor consumer of onions.
These sceptics have the bad habit of drawing parallels. They point out that much of the boom in industry and services followed the market reforms and the gradual withdrawal of government controls. Small industries did not collapse as a result, they restructured and, in the aggregate, are no worse off. So, why is agriculture different? Well, what do sceptics know?
The author is research director, India Development Foundation
