Know your onions

High horticulture prices, and onion prices in particular, raise a number of questions on how commodity markets are run and governed. Hoarding is most often identified as the culprit, but is it the only factor? What broader policy measures are needed?

MORE INFORMATION Indian agriculture is vulnerable to sharp price cycles. Hence, creation of storage facilities is encouraged in policy circles. However, if storage facilities are controlled by a small group of middlemen who procure in large volumes to manipulate price, it amounts to market failure.

The onion market, particularly in Maharashtra, is special for its large and developed status. Traders operating here in the traditional channel, unlike in many other States, are rich, experienced and well-connected. New players, including corporate sector entities, known for their innovative marketing strategies often bypass all traders to reach out to customers in malls and overseas stores, but their presence is yet small.

Two reforms are possible here. The first is to encourage more entrants, since competition will reduce the incentive to store for long periods. Other competitors can off-load during that period, bringing down the price and making the expense incurred on storage wasteful. The second is to bring in some degree of transparency and market intelligence.

We should move towards periodic declaration of private stocks in the hands of traders, processors, organised retailers and others in the food business, and even farmers with land holding above a certain threshold.

Today, it is only the Government that officially reports its stocks of foodgrain, and the lack of information on private stocks is glaring.

There is a strong indication of onion hoarding in some areas of production. Yet, price rise is also a feature of vegetables that are far more perishable than onion and cannot be stocked. Onion too is a multi-season crop and hoarding beyond a point does not make economic sense.

HORTICULTURE FOCUS The April-May harvest constitutes the bulk of the onion output, humidity being a serious deterrent to production. Nevertheless, a late kharif crop harvested in January to March, a kharif and even an early kharif onion crop add to the turnover. In October, on the eve of the kharif harvest, consumers fall back on the harvests from the early kharif and the rabi crops. In Maharashtra, onion harvest seems to be well distributed over the year. But slow transmission of price information, poor facilities for timely transportation of products and above all, a concentration of storage facilities in only a few States, could be responsible for the demand-supply gap.

More than half the onion produced in India is grown in three States — Maharashtra, Karnataka and Gujarat — Maharashtra’s share being over 30 per cent. Several other States are capable of producing the crop, but given their privileged status in water endowment, farmers prefer to raise cereals, although it is also possible to grow onion in multi-cropped land.

Food habits are shifting towards fruit and vegetables. The horticulture sector demands greater attention in terms of demand projections, supply planning, infrastructure, intelligence and market reforms.

(The author is Associate Professor, Institute of Economic Growth.)

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