Onion prices are already high, and there's more bad news

In November, retail prices of onion rose as high as  ₹80 a kg.  (HT)
In November, retail prices of onion rose as high as 80 a kg. (HT)

Summary

  • Onion output in the 2023-24 crop year may fall 15.6% to 25.4 million tonnes.

NEW DELHI : Onion prices, which are sharply higher this year, are likely to stay elevated, with scanty rains hurting production of the kitchen staple.

Onion output in the 2023-24 crop year may fall 15.6% to 25.4 million tonnes (mt) as key growing regions received weak rains, the agriculture ministry said. Production is expected to be lower by 3.4 mt in Maharashtra, 995,000 tonnes in Karnataka, 354,000 tonnes in Andhra Pradesh and 312,000 tonnes in Rajasthan.

Erratic rains sparked two vegetable price shocks in July-August and November 2023, leading to flare-ups in tomato and onion prices, respectively. In November, retail prices of onion rose to as high as 80 a kg, prompting the government to ban its exports, and deploy cooperative bodies to sell it at subsidized prices.

“Prices will remain firm as the ministry has reported a fall in output by 5 million tonnes this year. Inflation will remain elevated due to higher prices resulting from lower output this year," said Madan Sabnavis, chief economist of Bank of Baroda.

On Thursday, the all-India average onion price in the retail market was 33.3 a kg, up 28.6% on-year, data from the consumer affairs ministry showed. Lower output this year could lift prices further and put upward pressure on inflation, farm experts said.

In January, food inflation, which accounts for nearly half the overall consumer price basket, stood at 8.3%, down from 9.53% in December 2023. Inflation in onion stood at 29.4% in January, against 74% a year earlier.

“Unpredictable weather shocks remain the biggest risk to the inflation outlook, though government intervention, as in the past, to increase food supplies in the market could partially cushion the adverse impact," rating agency Crisil said in its India Outlook 2024 on Wednesday.

On Tuesday, the World Meteorological Organization (WMO) said the 2023-24 El Nino was among the five strongest on record, and will continue to impact global climate in the coming months despite a weakening trend. The UN agency also said above-normal temperatures are predicted over almost all land areas between March and May.

“Every month since June 2023 has set a new monthly temperature record—and 2023 was, by far, the warmest year on record. El Nino has contributed to these record temperatures but heat-trapping greenhouse gases are unequivocally the main culprit," said WMO secretary-general Celeste Saulo.

The Crisil report noted the influence of vegetable price spikes on headline inflation.

“While typically short-lived and dissipating as fresh crops enter the market, such price shocks can significantly push up headline inflation as seen this fiscal. Vegetable prices are highly volatile as the existing demand-supply mismatch is being exacerbated by climate disruptions. Weather disruptions have become frequent, and their recurrence next fiscal could again affect vegetable crops and result in a price shock," the report said.

Pushan Sharma, director of research at Crisil, said rabi onion begins to arrive from February, which may provide a temporary respite during the month leading to a price decline. “However, going ahead, prices are expected to remain elevated as the acreages under rabi onion are estimated to have significantly declined on-year, which will impact the output for the crop and, in turn, the market supplies," Sharma said on Wednesday.

Onion production stood at 31.6 mt in 2021-22. Despite this, the government has pegged the total production of vegetables in the 2023-24 crop year on par with last year at 209.14 mt, on expectations of higher output of cabbage, cauliflower, pumpkin, tapioca and tomato.

While tomato production is estimated to be 20.8 mt compared to around 20.4 mt last year, output of potato is likely to be 58.9 mt in 2023-24 against 60.1 mt last year, due to a decrease in West Bengal over the previous year.

“Tomato prices are expected to inch down if the climatic conditions remain unaltered, as the area under tomatoes has witnessed an uptick on year for the current rabi season," Sharma said.

With this, production of horticultural crops, including fruits, in 2023-24 is estimated to be flat at 355.25 mt compared to the previous year. The ministry also released the final crop estimates for the FY23 season at 355.48 mt. Fruit production is estimated to reach 11.2 mt from last year’s 11 mt, mainly because of increases in production of banana, mandarin and mango.

Despite this, the government has pegged the total production of vegetables in 2023-24 on par with last year at 20.9 mt, on expectations of higher output of cabbage, cauliflower, pumpkin, tapioca and tomato. -- 209.14 mt.

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