Onions are on the boil, once again. With onion retail prices in Delhi crossing Rs 40/kg in mid-September, and even higher in Mumbai, the government swung into action. It imposed a minimum export price (MEP) of $850/tonne, followed by a central team of bureaucrats visiting Lasalgaon, India’s largest wholesale market of onions, to assess the situation. It won’t be a surprise if they come up blaming onion traders for speculation and recommend stocking limits. While the heightened concern of the government is justified, we disagree with the policy instruments being used. Here is our take on it.
Onion price rise in September is not new. Prices rise in September almost every year due to seasonality, but every alternate year there is an accelerated spike (see Figure 1) due to “some other factors”. This shakes any political party in power. The standard response is imposition of MEP, stocking limits on traders, and sometimes even income tax raids on onion traders. These crude measures don’t provide sustainable solutions.
While onion price spikes make the government hyperactive, how many people remember that even in January to May 2019, when much of the late kharif and rabi onions were sold, the wholesale prices in Lasalgaon hovered between Rs 4-10/kg (Figure 1), and on some days even touched Rs 2/kg? This is against a cost of Rs 9-10/kg in Maharashtra, as estimated by the National Horticulture Research and Development Foundation (NHRDF). This means farmers incurred massive losses in 2019 from sales of onions, running into hundreds of crores of rupees. If the government was as hyperactive at that time to save the onion farmers from the price crash as it is today to save the consumers, perhaps these spikes would have been avoided. But there is an inherent “consumer bias” in our agri-price policies. This would be even more so when MMTC imports onions and “dumps” at below their import parity prices to “tame” domestic prices. This is likely to happen in late October-November, when the kharif crop will start arriving in the market and prices would be nose-diving in any case.
It may be noted that both these policy instruments — restricting exports through high MEP and dumping imported onions at below cost — are not only anti-farmer, but also anti-agri-exports and contrary to the prime minister’s vision of doubling farmers’ incomes. This must be avoided at all costs.
Figure 2 shows that whenever high MEP is imposed, such as $850/tonne, which translates to roughly Rs 60/kg, exports dropped sharply. The export parity price from October 2018 till date has remained below $300/tonne (see Figure 2). So this MEP of $850/tonne will deprive farmers of whatever little benefits they were getting from onion exports. India has emerged as the largest exporter of onions in the world, having exported about 2.4 million tonnes in 2018-19 out of a production of 23.5 million tonnes. Remember, it takes years to build export markets but with such abrupt export restrictions, India becomes an unreliable exporter, which adversely hits its unit value of exports. This damage is far greater compared to the short-term gains the government is eyeing.
So, what could be the best possible solutions? First, one needs to remember that price stabilisation does not come free. NAFED, which is entrusted with price stabilisation, should procure at least 2-3 lakh tonnes at the rabi harvest time (April-May), ensuring that farmers get at least Rs 12-15/kg, when they were getting Rs 4-8/kg. This will save onion farmers from a price-crash and give them reasonable profits, incentivising production and exports. But these stored onions will incur storage costs. Storages at farm level suffer losses of about 20-25 per cent, which can be brought down to 5-10 per cent with modern cold storages. But cold stores will cost about Rs 1.5/kg/month. These stored onions can then be released during August through first half of October, before the kharif harvest starts arriving. If NAFED incurs, let us say, five months storage cost at about Rs 7.5/kg, and if the procurement is at Rs 12-15/kg, they can still offload at say Rs 20-23/kg, and the retail price in September-October can be tamed to below Rs 30/kg.
Second, our analysis of onion value chains for three years average, ending 2018-19, with season-wise weighted average of wholesale prices from major mandis in Maharashtra, MP, Gujarat, and Rajasthan catering to Delhi’s onion demand, reveals that onion farmers get a mere 29 per cent share of the consumer’s rupee. The rest constitutes costs and margins of middlemen, with retailers apportioning the highest share. With the majority of onions traded through the APMC markets, the auctioning procedure is controlled by powerful traders and commission agents with much less bargaining power for farmers. Layers of mandi fees and commissions escalate prices further without much value addition or benefit to farmers. Our field visits to major mandis (Azadpur, Lasalgaon, Pimpalgaon, Mahuva) revealed that actual commissions are way above the prescribed charges. Officially levied on buyers, ultimately it is farmers that bear the burden. What all this indicates is that an overhaul of the APMCs is overdue.
Third, the Ministry of Food Processing Industries (MoFPI) should be at the forefront to extensively promote the use of dehydrated onions (flakes, powder, granules) among domestic households and institutions like the armed forces, hospitals, restaurants and schools (mid-day meals). This will take the pressure off fresh onions during the lean season. Currently, India exports 85 per cent of its dehydrated onions, and is the largest exporter of dehydrated onions in the world. Dehydrated products are much cheaper to store and are more durable. They can help check the spikes in onion prices. This will reduce wastage and help farmers get a fair price and consumers can switch to these dehydrated onions in the lean season at affordable prices.
If the government can take these steps, it will not only know its onions but also farmers.
Gulati is Infosys Chair Professor for Agriculture and Wardhan is consultant at ICRIER