The Centre should not have banned exports and imposed stockholding limits to check prices. A recurring problem calls for a well-thought-out response

Volatile onion prices – they have touched Rs 80 or so in Mumbai’s retail markets – at this time of the year have become a regular feature. As part of the script, the government of the day responds in knee-jerk fashion, more so when elections are around the corner. This time, the Centre has banned all exports and imposed stockholding limits of 100 quintals for retailers and 500 quintals for wholesalers. These measures are both ill-timed and avoidable. So, why does this drama play out year after year?

India, the world’s second largest producer of onions after China, produces about 23 million tonnes over three crops in a year -- rabi, kharif and late kharif – of which the rabi crop accounts for a major share of the annual output. Prices typically remain subdued till the monsoon sets in -- often alarmingly so, triggering farmers’ protests, as was witnessed in Mandsaur and Ahmadnagar in June 2017. Maharashtra (30 per cent of onion output) and Gujarat (10 per cent) are the major onion-producing states, more so during the rabi season, while Karnataka and Andhra Pradesh supply some of the kharif crop. With monsoon setting in late in recent years in peninsular India, the kharif crop tends to suffer damage. The heavy rain also affects the stored crop in Maharashtra, apart from the standing crop, adding to the price pressure. Add to this, the depletion of rabi stocks, and there is a two-month window when traders try to maximise their gains, possibly more so in the context of elections when they mop up funds for political parties.

 

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The government’s response is comprehensively wrong. Instead of shoring up prices by procuring onions through the summer months, so that prices remain above Rs 20 a kg – that would help agencies such as NAFED recover their storage costs, as experts such as Ashok Gulati have pointed out – the government sits back and watches this volatility play out, and then imports onions precisely when the new arrivals are likely to hit the market, hurting farmers in the process. It does not help that the long chain of intermediaries and the APMC system leaves farmers with less than a third of the retail price as his share, as observed by Gulati. It is surprising that initiatives such as e-NAM do not seem to have helped.

Timely procurement through the summer months, along with converting onions into a dehydrated or powder form will enhance their value. If policies are sensible enough, there would be little need to shed tears over onion price movements.

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