With huge spike in onion prices, government responded by banning exports, placing import orders and altering stock holding limits of traders.
Resultantly, there is expected to be a glut effect on the price soon.
What happened?
In November 2019, retail prices of onion in several places touched Rs 200 a kg.
The central government took several measures such as:
fixing stock holding limits for the traders
ordering onion imports from Turkey and Egypt
selling subsidised stored onions through few retail channels
The government had stopped onion exports on September 30, 2019.
What is the concern now?
The government’s own assessment says, there is expected to be a glut effect on the onion price by March 2020.
Significant decline in price is expected from February onwards when late kharif and early rabi arrivals start picking up pace.
What led to the price rise?
The key cause behind the huge spike in onion prices is the close-to-a-million-tonne reduction in kharif and late-kharif output in Maharashtra.
Maharashtra, notably, produces around one-third of the country’s onion output.
The reduction was because of prolonged monsoon last year resulting in crop damages.
Even Karnataka and Gujarat have witnessed significant rain-related crop damages.
Rajasthan’s Alwar district, which is an onion producing hub, was affected by dry conditions resulting in lower area and yield.
Delayed monsoon (up to first week of November) has had an impact on the output.
Overall kharif and late-kharif output is estimated to have declined by more than 27%.
The rains during September-October also affected transportation of the crop from these regions to consuming areas.
This led to limited availability of kharif onion in the market and put pressure on its prices.
What could bring down the prices now?
The forthcoming rabi or winter crop is likely to be much better due to better water availability.
There is also increased sowing by farmers owing to high prevailing prices.
Rabi onion acreage is set to increase by 5% to 10% in key producing states, including Maharashtra.
How are onion stocks maintained?
About 30% of the total onion output is during kharif and late kharif season, and the rest is during rabi season.
This ensures onion availability throughout the year.
The harvesting of kharif and late-kharif is carried out during November-January.
Rabi crops arrives in the market during January-May.
The rabi crops are stored, which takes care of supplies till the kharif harvests arrive in the market.
The stored rabi onion lasts till kharif crop arrivals in November.
However, even a fortnight of delay creates supply constraints in the market, and leads to a spike in prices.
A decline of 27% in kharif output could not have been replaced with imports from Egypt and Turkey.
Shortfalls - Market structure of onion is unilaterally dictated by the traders, not farmers.
The reason is that farmers play a minimal role in price discovery.
This is due to the low size of average farm holdings (1.15 to 1.3 acres) and unfavourable weather conditions and price risk.
What is the way forward?
There is a need for a better system for forecasting total production considering economic and meteorological events, at least in major onion producing area.
This would help in taking appropriate decisions about onion export.
The government must promote usage of dehydrated onions (flakes or powder) in the domestic market as well as the institutional buyers such as hotels and army.
Instead of reacting to spike in prices, the government agencies must provide some advance information on the stock available and the likely impact on the prices.
