Onions without tears

Price volatility in onions is a case study on how agri-markets should not be managed. Year after year, the prices of the bulb, of which India is the second largest producer after China, hit a peak between August and October after hitting rock-bottom in April. This is easily explained: the rabi crop, which accounts for 70 per cent of the onion output of 22 million tonnes, runs out by August or September, whereas the kharif crop arrives between October and December, leaving a two-month vacuum. Late and heavy monsoon showers in key growing areas of Maharashtra, Karnataka, Gujarat and Madhya Pradesh have frequently delayed and depleted the kharif crop, which accounts for 20 per cent of the overall output. February and March rainfall in north India can have a similar effect on the rabi crop. These trends can heighten the spike in autumn and winter months. The crop damage was extensive in Maharashtra last year, a State that accounts for a third of India’s onion output. This year, the damage was acute in flood-hit north Karnataka, which accounts for 17 per cent of onion output. Regrettably, policymakers have yet to learn their lessons.

Their responses are predictable, and wrong. The Centre typically slaps an export ban or minimum export price ($850 a tonne last year or ₹60 a kg, way above world market levels, in 2019) and contracts imports (25,000 tonnes are expected to hit the markets by Diwali), turning a situation of scarcity into a glut in double-quick time. An export ban was declared early September and withdrawn a month later. These knee-jerk responses can be avoided if agencies such as NAFED procure the rabi crop at a decent mark-up (₹12-15 a kg) over the cost of production of about ₹9 a kg, as suggested by agri policy advisor Ashok Gulati. This will save farmers from distress sales during the months of April and May. A storage cost of ₹1.5 per kg for five months would lead to a retail price of about ₹30 per kg during the festive season, which is one-third of the current price. Efficient storages can minimise losses, which can go up to 25 per cent. The ₹1-lakh crore agri infrastructure fund should be deployed.

Windfall gains by intermediaries, riding the boom and downturn of the cycle between April and December, can be curbed this way, as against deploying high handed provisions under the Essential Commodities Act. Farmers should be rewarded for their output by encouraging exports rather than penalising them. India’s demand, about 15 million tonnes, is less than its output. It exports only about 2.5 million tonnes of the bulb. The old-fashioned emphasis on stocking controls and checks on movements are not of a piece with the current accent on pro-market reforms, that are meant to benefit both farmer and consumer.

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