Recently, retail prices of onion touched Rs 50/kg in several markets and the wholesale prices touched Rs 30/kg.
This is in the backdrop of a bumper crop year earlier this year, that forced farmers to sell onions at as low as Rs 2/Kg in May.
This stresses the urgent need for “scientific storage facilities and a judicious trade policy”.
How was the price crash handled?
While the boom and bust in onion prices happens almost every alternate year, 2017 is interesting as it saw record low prices.
The situation became precarious when farmers protested and police fired at them, resulting in some unfortunate deaths.
Madhya Pradesh CM realised the sensitivity of the incident and quickly announced a decision for massive procurement.
Onions were bought at Rs 800/quintal and state agencies procured around 8.76 lakh tonnes.
But in the absence of ample storage capacity, onions had to be quickly sold through PDS & open markets.
Notably, onions were disposed at almost one-fifth the cost and the whole operation caused a loss of Rs 785 crores.
What is the recent price trend?
In August, prices started shooting up, which gave rise to speculations of hoarding by traders.
Consequently, inspections by the Ministry of Consumer Affairs, IT raids on traders were conducted.
Trade was also suspended in the Lasalgaon APMC for a month.
Despite these actions, the prices kept rising, prompting the government to announce import of onions to bring down prices.
Notably, such random government actions are common every year.
Last year too, government fixed a minimum export price, banned exports for a while.
How does the Onion Production calendar look?
India produced 21.7 MMT of onions annually, which is about 20% of global production in 2016-17, next only to China.
Of this, 2.4 MMT was exported in 2016-17, which was up from 1.2 MMT in 2014-15.
Rabi Crop - About 60% of onion production is in the rabi season, sown in December-January and harvested in April-May.
This onion is stored by farmers and traders and it meets export as well as domestic demand till the arrival of the kharif onion.
Kharif Crop - Kharif onion is sown in May-June and harvested in October-November.
A late kharif crop is also sown in August-September and harvested in January-February.
Both produce about 20% each of the total annual production but both are of poor quality and can’t be stored for long.
What are the reasons for high price volatility?
Prices tend to rise in October-November, when rabi stocks are almost depleted and kharif onion is yet to hit the markets or if the crop fails.
High price volatility also stems from a lack of storage facilities that have not kept pace with rising production.
Also, the traditional storage practices incur losses as high as 40%.
Notably, Maharashtra used the Rashtriya Krishi Vikas Yojana and National Horticulture Mission and created 42,282 low-cost onion storage structures with a capacity of 9.65 lakh tonnes.
But, there is hardly any storage facility in MP, which is reflective of why MP farmers suffered most in this year’s bumper onion crop.
What can be done?
Storage - Modern cold storages, as being set up by companies like ‘Allround India’ can bring down wastage within the 10-15% range.
Hence, promoting modern cold storages and developing a system akin to that of the warehouse receipt system for farmers is needed.
While encouraging the private sector to take the lead, the state can do some stocking under a ‘Price Stabilisation Fund – PSF’.
Trade Policy - An effective trade policy that is responsive to production realities is necessary for price stabilisation.
Promoting exports in case of a bumper crop and encouraging imports in case of deficits should be primary to any trade policy.
This has to be done well in advance — as soon as one comes to know the advance estimates of production.
Processing - Encourage the setting up of onion dehydrating units and promote demand for dehydrated onions can be considered.
Currently, Gujarat has already emerged as the main centre for dehydration units with 85 out of 100 units located there.
Dehydrated onions are being exported to Japan, Europe, Russia, US and some African countries.
Ministry of Food Processing and state governments should encourage entrepreneurs to setting up onion processing units.
While a subsidy of up to 35% with a cap of Rs 5 crore is currently being provided, the budget of the scheme is just Rs 95 crore.
This needs to go up manifold if we are serious about encouraging food processing and stabilising prices.
