BackHow to check onion prices
Efforts needed to build a system for production forecasts and market intelligence that would facilitate timely policy decisions on exports and/or imports
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The decision to buy onions as part of weekly shopping will be thought twice, food menus will change and eating onions might just become a Sunday special. Onions, which were selling at ₹ 25 a kg a few weeks ago are now hovering around ₹ 60 a kg and may go up to ₹ 70. Unexpected rainfall that damaged the crop with limited supply and expected arrivals of a new red onion crop in November and December have resulted in the rise. Last year, the government took swift action to control the rising prices of onion. This year, the central government is in the process of importing 10,000 tonnes of onions. It is also boosting supplies in Delhi retail markets through the central agency Small Farmers Agribusiness Consortium.
In this fluctuating onion price story, factors such as excess demand, supply shocks, speculative storage or hoarding, poor market infrastructure, weak supply chains and trade controls can be held responsible for explaining the price shocks.
In July 2014, to safeguard domestic interests, the government restricted exports by imposing a minimum export price (MEP) of $250 per tonne, which was increased to $425 per tonne this June, and further increased to $700 per tonne in August. Such export restrictions, coupled with greater imports, are expected to cool down domestic prices. However, trends in market arrivals and prices in major markets such as Hyderabad, Ahmedabad, Bhopal, Bengaluru, Delhi, Mumbai and Pune show that prices have been anaemic in reacting to market arrivals. Recent research by the International Food Policy and Research Institute shows that prices are more volatile in Bhopal, Delhi and Pune. Clearly, this shows a major role is played by other factors in determining prices and the exigency is to shift away from the usual temporary fix to something more permanent.
With dependence on rainfall, the production, and consequent delays in market arrival, and future expectations also fuel speculative activity in onions.
An interesting aspect of the onion story is the degree of market integration. Inefficiencies in marketing infrastructure and high transportation costs also hurt the market in mitigating rising prices. A natural consequence of integration is the transmission of price signals between markets, which can transmit market specific shocks across states. In the case of onions, Ahmedabad, Delhi, Kolkata, Mumbai, Pune and Ranchi play a major role in impacting the rest of the markets.
Despite many short-term measures to curb prices, a multi-pronged strategy needs to be evolved to stabilize the price of onions. Since volatility in onion prices is an outcome of speculative storage, it is, therefore, important to closely monitor market behaviour, regulate storage and check unscrupulous trade practices in the axis markets from which price signals emerge. Incentivize farmer producer organizations for onion production and processing in different agro-ecological zones to maintain a regular supply of onions and check speculative behaviour of market functionaries.
Efforts are needed to build a system for production forecasts and market intelligence that would facilitate timely policy decisions on exports and/or imports of onions. It is also time to look into the dehydrated onions market, which may help arrest price volatility to some extent. India produces 25,000-50,000 tonnes of dehydrated onions annually, but only 15-25% of this is utilized by processed food manufacturers. Investment in dehydration facilities will help in the utilization of the existing stock.
Finally, it is important to develop varieties, technologies and cultivation practices suited to varied environments so as to dilute regional concentration in production and marketing. This will provide not only income stability to farmers and thereby increase productivity (with enhanced investment) but also much-needed price stability to consumers.
P.K. Joshi and Akanksha Negi are, respectively, director, South Asia, and former senior research assistant at the International Food Policy Research Institute.
Comments are welcome at otherviews@livemint.com
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