Despite growth in production, local factors impact prices of onions, potatoes, tomatoes

Onion has essentially two production cycles, every year.

By: Express News Service | New Delhi | Updated: July 6, 2014 4:05:14 pm


The Indian Express finds that onions lack the storage that potatoes have, and that complex factors drive market prices


Onion prices have dipped in all the five major cities of India in May this year. But in almost all of them the retail price of the crop has flared.

This peculiar difference has arisen because of storage asymmetries for onions, the second largest among India’s four major horticultural crops, the others being potato, tomato and brinjal.

Out of 55 cities, data from government and those from reporters of The Indian Express show retail prices of onion have risen in almost each of them. In Ahmedabad, prices have risen by Rs 10 to Rs 27 in the two-month period. In Bhubaneswar it has risen even more at Rs 12 a kg to Rs 28 and by Rs 18 to Rs 34 in Kolkata.

This is the reason why despite a record production in FY14, on Wednesday the government raised the minimum export price of onions to $500 per tonne. A week earlier it had raised it to $300 per tonne. As per Agricultural and Processed Food Products Export Development Authority (APEDA) data, India has exported Rs 3,169.63 crore of the crop during the FY 14. “There is a lot of demand of Indian onion in the world. It is the second largest (producing) country. Indian onions are famous for their pungency and are available around the year,” its website reads.

Onion has essentially two production cycles, every year. While all states in western India produce the crop, ranging from Haryana to Tamil Nadu, it is Maharashtra that accounts for almost 28 per cent of India’s production.

But the shortage of onion in the major cities has just no relation with the monsoons or with exports. “It is instead the signalling effect of the rains that has created the spike,” says Sunil Sinha, economist with Fitch Ratings.  He is spot on. In FY14, India is on course to record its highest production of the horticultural crop at 19.2 million tonne (MT). Year-on-year this is about a 16 per cent jump and in any case far higher than the annual rise in consumption. Exports too, as the table shows, is soft. It has been less at 1.3 MT against 1.8 MT in FY13.
The shortages are because of two factors. There is little facility for warehousing onion crop unlike potato. The truckloads that travel out wards from Nashik and other places have to find a buyer soon, at whatever the price when they reach the mandis. The only warehouses are at the major producing centres like Nashik and at adjoining places.

In the absence of strong warehouse support, the price signals get distorted. So out of the five top cities while arrivals at Bangalore this year have been high because of the local crop that needs an immediate market and at Mumbai, it has dipped or remained flat at Chennai, Kolkata and Delhi in May this year.

Despite the dip in supply, the model price at the wholesale level has dipped everywhere showing that traders are not banking on a low monsoon hitting supplies. But prices have still risen.


At the same time as onion and potato prices have flared, tomato retail prices have potentially created a great arbitrage opportunity for anyone taking a journey across India.

In a two-month period from May, data from 55 cities show a yo-yo trend for the product. It has risen by Rs 5 a kg in Varanasi and dipped by the same amount in nearby Lucknow in the same period. While prices have dipped by Rs 8 a kg in Shimla, downhill at Chandigarh, prices have risen by Rs 7 in the same period.

Of the major horticultural products in India tomato has the most diversified production base. APEDA statistics show that except for Andhra Pradesh that accounts for over 28 per cent of the total annual crop, the next nine produce between 3 to 10 per cent of the annual output.

All of them are spread across different climatic zones. This makes the crop’s arrival in the markets perennial. In the past two years, while prices of onion and potatoes have flared, that of tomatoes have remained flat.  This is despite the higher requirement of cold storage for the crop than for onion which can be preserved in relatively open conditions.


The chain of cold storages in Agra are the lifeline of the potato business in India. Unlike onions and tomatoes, the potato crop grows only once a year in winter. Potatoes arrive in these cold storages by March and April every year from where they are released through the year, till the next crop arrives.

Potato production in the country has not declined in FY14 crop cycle. But it has not risen much, either. The crop, however, is not in short supply. From FY12 to FY14 the total potato production in the country has risen by 5 million tonnes (MT) or 12 per cent to 46 MT. The major crop producing areas are West Bengal, western Uttar Pradesh and Punjab.

While all have storage facilities, Agra has over 10 per cent of the total cold storage facility in the country. It is, however, the presence of these cold storages to hold potato production that ensures the producers can wait for prices to rise. The same cold storages which has triggered a rise in the crop production is also the reason why prices tend to rise whenever the producers sense an opportunity.
Agra owes its boom in cold storage of potatoes to a court order on the Taj Mahal.

In the early nineties when the foundries were asked to close, a huge amount of space was released from these units with no other manufacturing industry in sight. The space surrendered by them came in handy to be develop as cold storage facilities.

For example, just track the market arrivals for the crop in the major cities. As the chart shows, despite no shortage of production, arrivals in Chennai fell by 16 per cent in April this year to 47,300 quintal. In Bangalore, arrival was almost flat. As a result prices in both these markets rose by 15.7 and 6 per cent. Int Mumbai again, arrivals in April fell setting the stage for a rise in prices.

In Delhi, retail markets in the two-month period since May 1, 2014 potato prices have risen by 18 per cent to Rs 28 per kg. While the prices have been steady in the North Zome, data from centres collected by The Indian Express shows the steepest rise has been in south India. At Visakhapatnam, the rise has been 35 per cent to Rs 23 and in Vijaywada it has risen 25 per cent to Rs 25 a kg. Of the 12 centres in the region, where data is collected by the ministry of consumer affairs, there is not a single centre where prices have not risen.


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