When it comes to onions, it seems politicians, of any hue, will never learn. Onion prices were hugely up again lately, touching ₹80 per kilo in some parts of the country. In response, the present BJP government has done what other governments did earlier – banned the export of onions and imposed rigid stock limits on traders.

This is a knee-jerk reaction, and as soon as the immediate cause of shortage disappears or a new crop arrives, the regulatory regime will return to its traditional stance of doing nothing. Then, usually after a gap of a couple of years or so, another crisis will emerge, and the same traditional package of measures will be adopted.

This happens because the government responds to the plight of consumers when retail prices shoot up, but not to the plight of farmers when they get a miserable price and suffer a major loss. Prices for farmers dropped to as incredibly low as ₹1 per kilo in late 2018, when their cost has been calculated at around ₹8 per kilo. This prompted farmers in the major onion-growing Nashik region to tell journalists they would not vote for the BJP in the coming 2019 elections. But they did, and the onion economy remains as unstable as ever.

Onion economy

In the past, high onion prices have been considered to bring about the downfall of governments. This was one of the causes of the Janata Party’s defeat in the 1980 elections, enabling the return of Indira Gandhi. The defeat of the BJP in Delhi in 1998 was also attributed to high onion prices.

The inability of the present BJP government to look at the plight of onion growers and the problems of the onion economy is of a piece with its overall approach to agriculture and persistent rural distress for several years. The government neither understands nor has a plan for reviving agriculture in a manner such that two-thirds of Indians who live in rural areas and half of all workers who earn a living from agriculture get a better deal.

Globally, India is a leading grower of onions, the major supplier in its region and the foremost consumer, but ranks low in crop yields, with the US and Korea far ahead, and China also a couple of steps ahead.

The demand and supply balance in onions is periodically vitiated, with prices peaking and precipitously falling once every couple of years or so for one or more of the following reasons — drought or flood affecting production (the latter also transportation); and acreage being influenced by the farmer’s experience in the previous year, leading to shortage or oversupply. In contrast, domestic demand has followed a predictable and steady trend.

The way to put the country behind this is to change policy from being consumer-centric to farmer-centric. The foremost concern should be ensuring that the farmer gets a reasonable return in keeping with the rise in his costs and a reasonable margin. If the farmer is happy, then the consumer will be eventually happy and not treated to periodic shocks, as is the case now.

All that one needs to do is look at the way the country’s milk economy has been organised, with the producer being kept at the centre, ensuring that he recovers his costs and earns a reasonable margin. In the process, the consumer has benefited by being assured a steady price which moves in step with inflation; and of course, there are no periodic shortages.

Removing the red tape

To ensure that both the farmer and consumer are happy, the government has to remove policy-induced market imperfections. Restrictions on exports, be they through unplanned hiking of the minimum export prices or an outright export ban, have to go. If not, the onion business will not only fail to reap a windfall gain, but also be unable to develop and maintain credibility with long-term buyers.

Simultaneously, restrictions and impediments in domestic marketing have to go. A majority of the crop is traded through APMCs, where prices are manipulated by big traders and the farmer has to eventually foot the bill for a lot of market levies. The APMC anachronism has to go. The farmer and trader must be allowed to deal directly, and corporates with deep pockets and a long-term perspective should be encouraged to invest in storage infrastructure.

Food processing also needs to come up in a big way, by building of a capacity for dehydrating onions. The government and corporates need to popularise the consumption of dehydrated onions, and over time, corporates should build their own brands. Those who want fresh produce must pay a premium, and the price-driven will periodically choose dehydrated stock.

Onions are not like leafy vegetables, whose shelf- or storage-life is severely limited. Hence drought- or flood-induced demand-supply imbalances should not be an issue, as changes in stocks can even them out. The farmer and the consumer need not suffer. They do because politicians refuse to learn.

The writer is a senior journalist

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