Onion Price hike : A critical issue

An onion, today being compared with diamonds indicates its value for an normal household budget. Though price rise of all the essential commodities, inflation and depreciating rupee are making headlines these days but rise in the price of onion is catching everyone’s eye, as it is an essential ingredient in almost every food item prepared at Indian home daily. Owing to this, price rise of onions quickly becomes a political issue and a vote fetching agenda by the opposition.

After China, India is the second largest producer of onion and enjoys 19% share of the global onion production. Maharashtra and Karnataka are the chief onion producing states in India and contribute near about 45% of the total production of onion in India.

Since last August, there has been 245% rise in the wholesale price of onion this year that in turn has given an unpredicted turmoil in inflation. Inflation in India is measured by the Wholesale Price Index method in which wholesale price of the selected commodities is taken to calculate it. In July, the WPI was 5.79% whereas in August it jumped to 6.1%. The rise is because of food price inflation that went up to 18.18% from 11.91% in the same period. Within few weeks, the price of onion has shot up from Rs 20 per kg to Rs 70 per kg in some parts of the country.

Production of onion in India is about 15m tones a year. Fresh produce is received in 5 months and in rest of the months the demand is met through stored onions. Importance of onion can be checked from the fact that onion price hike led to the fall of government not just once but twice in the history. To avoid any such situations, hoarding is immediately banned and import of the product is granted by the government.

Way back in 2010 and history

India had seen a dramatic increase in onion price across all the markets in 2010 as well. The cause of price hike was the delay in reaching onions to the markets. Nashik, an onion producing region was also badly hit by unseasonal rainfall. Unpredictable rainfall that led to the shortage in the production of onions, was another reason of this price hike. Political stress was created. Hoarding and price increased by traders were also blamed for the same.

Onion had also played a significant role in the 1998 state elections in Delhi and Rajasthan and in 1980 it was even responsible for bringing down the central government.

Situation at present

But this year again the situation is same. Speculations are going on that traders might have increased the price to earn profit. They are actually exploiting and taking advantage of the seasonal shortage in supplies. Maharashtra, the chief state producing onion has been asked for a regular supply of onion. It should intimate if there is any obstruction in the supply chain.

As per a seasonal trend, price of onion tend to increase and reach at peak during September to November and drop in January-March. However, the unwelcome price hike is giving the ruling government in Delhi sleepless nights. The Congress party rode to power in the 1998 elections on the issue of onion prices, and history seems to be repeating itself. After playing see-saw near the Rs. 60-80 per kg for some time, prices have suddenly shot through the roof and touched Rs. 100 per kg in certain areas in the capital. As usual, the government is blaming it on the hoarders, the opposition, and perhaps also their luck, but it seems to lack a concrete plan to tackle the menace. As Delhi goes to elections in early December, one has to wonder if the damage has already been done.

Lasalgaon (town in Nashik District in Maharashtra) is the largest hub of onions in Asia. The supply of onion falls to 3,000 quintals on Monday as compared to 6,000 quintals on September 6. This led to an increase in the wholesale price of onion per quintal from Rs 4,140 to Rs 5,300. Similarly, price rise has also been seen in all the major cities. In Mumbai, wholesale price increased by Rs 1,000 per quintal and in Delhi by Rs 800 per quintal during the same period of time. Though in Bangalore reverse trend has been noticed where arrival has increased by 300% leading to fall in the wholesale price of onion. With early kharif crop, prices had dropped in mandis in Karnataka and Andhra Pradesh.

What is causing the price rise of onions in India?

Since January, price of onions has been high. Initially lack of enough water for the crop and later on excessive rain was the reason given for the shortage of this food item. Some of the business leaders also say that poor infrastructure for storage and transport of fresh produce is causing the entire hoax. Some even say that price rise in India is man-made rather than seasonal.

Hoarding – Traders are keeping the stock and selling it at high price and thus making full advantage of the seasonal shortage. Traders at Nasik, an onion hub in Maharashtra are deliberately slowing down the pace of releasing the stocks. This is also causing the price of onions to increase. So even if the country has high produce, the trader-intermediaries who operate in groups encourage hoarding to keep the prices high.

Mismanagement – Onion supply chain that ends up to the retailer is not managed the way it should be for a seamless supply. Farmer who grows the crop is never benefitted from the price rise but it is the supply chain after him that takes the whole benefit and needs to be managed for a regular supply.

Inflation – Recently fuel prices have been increased by the government to stop the downfall of our economy. Common man is bearing the pressure by buying essential household things like fruits and vegetables at higher price than before.

Concentrated effort to find hoarders and increasing the minimum export price (MEP) would help in lowering down the price of onion. In August government has fixed MEP at $650 per tonne onion. This caused the exports to reduce to only 0.29 lakh tonnes last month as compared to 1.56 lakh tonnes in the same period last year.

Since price rise in food items directly leads to inflation so these must be addressed on priority by the government.


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