Why onion prices are making farmers cry this year, explained in charts

Onion prices undergo periods of sharp rises and corrections, often spanning months; however, the steep decline this year comes despite prices remaining within a range over the past five years.

Whether onion prices surge or plunge, they become a politically charged topic in the country, given their importance in the Indian diet for consumers and their commercial nature for farmers.

A break in the cycle

Onions, grown largely in concentrated pockets in states like Maharashtra, Madhya Pradesh, and Karnataka, are the second most important commercial vegetable in India after potatoes.

Grown largely in the rabi season (October-January), onions have a maximum storage life of seven to eight months. Hence, it exhibits sharp price volatility whenever a demand-supply mismatch occurs, influenced by factors such as adverse weather patterns, storage issues, and government interventions. Over the years, retail inflation for onions has displayed a similar pattern of sharp rises, followed by steep declines.

This year, retail onion inflation saw sharp deflation for the fifth consecutive month in September. It started with prices plunging 10.7% in May, which then escalated to a 49.9% decline in September. Compared to historical trends, this is less severe than deflation cycles of 21 months seen in 2021 and 2022 and the 18 months in 2016 and 2017.

Yet, the current one has already started pinching farmers as it did not, like previous instances, come in the form of a correction from abnormal rises.

Leading the charts

Vegetable prices have been falling on a year-on-year basis for the past eight months. Of the 21 key vegetables, 10-16 have seen deflation during this period, keeping overall prices in the contraction zone.

Of these, three vegetables are key for Indian consumption, almost irreplaceable: potato, tomato and onion. Among these, onions saw the sharpest price decline in recent months until September.

Moreover, in recent weeks, the decline in onion prices has become much more severe. Data from consumer affairs departments shows that potato wholesale prices declined 35-36% and tomato prices 24-44%, while onion prices slumped 54-56%.

For context, the sharp decline in tomato prices is coming on the back of a high base from last year, which is not the case with onions. The wholesale prices of onions are as low as ₹20-21 per kg currently—a level not seen since the summer of 2023.

The reason behind the steep fall is a culmination of robust production of onions in recent years and oversupply in the domestic market following a series of restrictions and bans on onion exports since 2023.

Problem of plenty

The main reason onion prices are depressed is the continuing effect of restrictions and bans on onion exports that took effect in 2023. As onion production was estimated to plunge nearly 20%, the government announced a series of measures to keep prices in check.

First came the 40% export duty in August 2023, followed by a minimum export price of $800 per tonne in October 2023, and finally a complete ban on exports of onions in December 2023.

The ban was lifted by May 2024, but some of the restrictions continued. The last major restrictive measure, the 20% export duty on onions, was lifted only in April 2025. However, exports have continued to decline in FY26 until even as bumper production in FY25 restored the supply in the market.

The oversupply of onions in the markets is the main reason for declining prices. According to Gaura Sengupta, chief economist at IDFC First Bank, the government, in the current situation, can promote exports and focus on better distribution across regions to arrest the decline.

Rainfall rage

Apart from already depressed prices, which means farmers were already getting less money for good crops, incessant rainfall in many parts of Maharashtra and Karnataka, the two key onion-growing states, has damaged crops, causing even lower returns for them. The farmers in these areas have been demanding government support to offset the losses. State governments have proposed measures such as compensation for crop losses and paying the difference between the pre-determined market intervention price (MIP) and the actual selling price. The central government hasn’t announced any measures yet.

According to Madan Sabnavis, chief economist at Bank of Baroda, the government cannot do much to address the problems. “The logical and easier one is to push for exports, and the second is the creation of another buffer stock." Without much intervention, prices are likely to stay low until the current season is over. Then, self-correction will kick in, with farmers growing less onions for the next season, dismayed by low returns this year, , Sabnavis explained..

The onion effect

Onions have a way of influencing headline inflation despite their mere 0.64% weightage in the Consumer Price Index (CPI), thanks to high volatility in their prices. Take last month, for instance, retail inflation was 1.54%. If onions are excluded from the basket, retail inflation shoots up to 2.24%, which means onions were a downward force of 70 basis points (30% of overall inflation) during the month.

This was the strongest downward pull since December 2020, when inflation would have been 130 bps higher if not for onions. The opposite is also true; when onion prices rise, they pull up headline inflation dramatically.

In December 2019, when onion inflation had skyrocketed to over 300%, onions alone contributed over 200 basis points to inflation, pushing it past 7%. The deep impact of onion prices on headline inflation and inflationary expectations thus requires policymakers to keep prices in check.

The government's response is often prompt when there is a spike in onion prices to avoid public anger. This time, some measures may be needed to address farmers’ distress to avoid underproduction and kickstart the cycle of a sharp increase in prices later.