Onion prices at a four-year high. Why?

BL Research Bureau

Either growers or consumers of onions are in tears every year.

While in November-December and also between March and May, farmers sell onions at throwaway prices and there is no rescue, in September-October, the bulb crop’s prices skyrocket, making it unaffordable for the common man, and the government brings in export restrictions and stock limits. Read: Centre bans onion exports, imposes stock limits for traders

This year, it is a repeat of the same story. Onion prices have been moving higher since last month. But what is appalling is that this year prices have moved to levels unseen since 2015.

Now, the bulb crop is ruling at around Rs 36-40/kg in the wholesale market in Lasalgaon, Nashik, and in retail markets have crossed Rs 80/kg. In 2018-19, onion production was at 23.48 million tonnes – the highest ever. But 2019-20 didn’t begin on a good note, which is the primary reason for the current situation.

In Maharashtra, there was drought in many regions around January-February, and the acreage under onions dropped.

However, NAFED did manage to procure a good volume of onions from farmers for the buffer – it procured over 55,000 tonnes of the produce from farmers in the State versus last year’s 18,000 tonnes.

But given the average daily consumption of 40,000-50,000 tonnes, the procurement done by NAFED is still very small to keep market prices in check.

Further, the Kharif arrival of onions from key states in the south, including Karnataka, is expected to be lower this year with the region having experienced heavy showers in the last one month. So, it is anticipated that there will be a large supply deficit in the coming months.

Procurement & storage challenges

Onions are easy to store. The bulb stays fresh for three or four months after harvest even without a cold chain, as long as it is stored in a moisture-free environment. But note that this is only for the crop produced in the Rabi season – April, May. Crops produced in other seasons have high moisture content and have very minimal storage life.

In India, onions are grown over three seasons – Kharif (harvested in October-November), late-Kharif (January-February) and Rabi (April-May). The Rabi season crop is the largest, accounting for about 60 per cent of annual production; Kharif and late Kharif account for about 20 per cent each.

So, crops produced in Kharif or late-Kharif see farmers disposing them off at dirt-cheap prices as it can’t be stored and the government too doesn’t step in to rescue these farmers. In January this year, farmers in Lasalgaon sold onions for Rs 3-4/kg at mandis . Speaking to BusinessLine , a farmer said, his cost worked out Rs 8-9/kg, and he sold his produce at a loss.

While the solution to the woes of distressed farmers lies in their forming farmer-producer groups and striking deals directly with customers in domestic and export markets, the solution to woes of consumers remains with the Centre building a strong warehousing system and maintaining a rolling stock in onions, says Yogesh Thorat, MD, Maha FPC, which helped NAFED procure about 25,000 tonnes of onions this year.

Much of the onions produced across the country are stored even today at the farm gate level in structures built by farmers. These are traditional mesh-framed structures with a metal-sheet for roof that do not offer foolproof protection against wind/moisture and rain water. In Maharashtra, a BusinessLine enquiry ascertained the existence of about 21 lakh tonnes storage capacity (these are normal storehouses with no temperature/moisture control facility). Of this, almost 14 lakh tonnes capacity was built by farmers with government subsidy (up to 50 per cent of cost), while the rest was built privately.

There is need for cluster-level warehouses in each state, including Maharashtra. This will make sorting/grading and supply to customers/markets outside the State easier.

Once these clusters come up, procurement can be increased from the current levels of 50,000-55,000 tonnes to one lakh tonnes, or even higher. NAFED can also benefit from this move. This year, for instance, it has made good money on the procured onions – while procurement was at an average price of Rs 11.5/kg, it is selling it in the market at Rs 27-30/kg.

However, on one side while procurement increases, the Centre should also give a thought on how it will dispose the stock. While essential commodities like paddy and wheat are disposed through PDS shops, there is no such arrangement for onions currently.

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