2 min read.Updated: 30 Sep 2019, 10:16 PM ISTLivemint
The government’s clamp on exports may well contain the bulb’s price surge. But for a real solution, we need to manage stocks better and rescue farmers from a boom-and-bust cycle
It took only a few weeks for onion prices, which began their ascent late August, to top ₹80 per kilogram in some retail markets. An alarmed government did what it often does. It banned onion exports and capped the stocks that traders are allowed to keep. Clamps on outbound shipment had been imposed earlier, by way of a steep minimum export price of $850 per tonne, or about ₹60 per kilogram. The Centre’s effort to enhance domestic supply is understandable, since this vegetable is a diet staple in India, especially for the poor. A spike in its price is said to have unseated at least one state government in the past. Two decades ago, the Bharatiya Janata Party lost power to the Congress party in Delhi in what was billed as “the onion election". That episode has not been forgotten. But a ban on exports may not be the best way to keep a staple item affordable. It may offer temporary relief, but there are other ways to deal with price volatility.
Rather than resort to arbitrary restrictions, better supply management could do an effective job. There is some seasonality to the rate at which these edible bulbs sell. Typically, prices trend upwards as the annual monsoon season ends. This is an in-between phase, after the spring harvest of the rabi crop has thinned out, but the kharif harvest is yet to hit the market. An analysis of price trends in the past half decade reveals price spikes during this period every alternate year. This suggests that farmers have been responding to a boom-and-bust cycle in their onion earnings. If the previous year was rewarding, more gets grown, which could crash wholesale prices. If the experience was bad, on the other hand, they prefer to use their land for other crops. This could also happen from season to season. Consider this year’s story. Onion prices in Maharashtra’s Lasalgaon, the country’s largest wholesale market for the vegetable, crashed to ₹5 per kilogram in January, thanks partly to oversupply caused by increased acreage over the past five years. Reeling under losses, many farmers opted for other crops. Coupled with other factors, this appears to have squeezed supply, and fears of a shortage were enough to push prices up.
An effective way out would be to intervene not just on behalf of consumers, but also on the side of farmers whenever they suffer a price crash. State agencies should buy onions in bulk, assuring them of better remuneration, and hold them in storage for release later in the year once market prices exceed the cost of procurement plus preservation. It is not as if our policy tools don’t aim for this. But any price stabilization mechanism needs proper implementation if onion producers are to be rescued from a cycle of gluts-and-scarcity that seems to have set in. This might require a revision of various other policies that restrain farmers from selling their crops freely, even domestically. For too long has the country expected farmers to keep supply going without offering them a good chance to maximize their income. The current crisis may justify an export ban as an emergency measure, but in general, the country should not take anyone’s export opportunities away. Just as central banks keep a close watch on liquidity conditions to keep interest rates and other prices on an even keel, the government should devote special attention to the task of smoothening out onion price volatility. It is a perishable commodity, but these days all it takes is technology to extend its shelf life.