The case of rising onion price

Arkatapa Basu, Jasmin Nihalani, Kanishk Birat

States have not really bought onions imported from Turkey and Egypt by the Centre. The onions were imported to provide them at a cheaper rate as their prices in the country had surged dramatically. 

States were expected to buy the imported onions rather than domestically cultivated ones as Centre was offering them at a fixed cheaper average rate of Rs. 55/kg. The Centre is also bearing the transportation cost. 

Onion Prices in different cities

The reason is that imported onions do not taste better than domestic ones. Now, price of domestic onions have fallen to an average of Rs. 50/kg throughout the country. Consumers are not buying the imported ones when domestic ones are available at same rate. 

The home grown onion prices had start to hike from September onwards and their prices had surged to a high of Rs. 170/kg in some states in December. So, the Centre had begun to pile on stocks of imported onions from November. The interesting thing is that some states had themselves requested the Centre to import onions at that time but later withdrew their demands. 

 In an effort to not waste the imported onions, the government has asked Bangladesh to procure them after a majority of states refused to buy them. Of the 18,000 metric tonnes (MT) of imported onions only 3,000 MT have been procured by the states.

While onion prices skyrocketed, there have been minor fluctuations within the market. In Lasalgaon Agriculture Produce Market onion prices dropped by 17% or Rs 6 a kg on September 30 due to arrival of 500 tonnes of extra produce. 

The crash happened because thousands of farmers came with cartload of onions to cash in on the higher prices. However, they were not aware of the government imposed stock limits. 

Rotting onions in Lasalgaon

Consequently, the prices shot up again in the first week of November, especially in the National Capital Region due to untimely rain in growing states like Maharashtra, Rajasthan and Karnataka. According to a Business Standard report, prices have increased three-fold since last year and is currently being sold at Rs 80/kg. 

Commodities and agriculture sector analyst, Deepak Chavan said, “Every year 60 lakh tonnes of onion are stored in a traditional way across country. And out of this, at least 20% gets wasted. If these 12 lakh tonnes of onion were available today, we would not have a crisis.”

Onion expert and director of National Agricultural Cooperative Marketing Federation of India, (NAFED) Nashik region, Nana Saheb Patil had blamed government policies on mismatch of demand and supply. He said, “The monthly onion consumption of the country is around 50,000 metric tonne (MT). Currently, the daily supply is just 10% to 20% of that, and this is the major reason that onion prices crossed 150 per kg mark.”

Higher food prices in December

High vegetable prices have been the trigger for steep rise in inflation in December 2019. An India Today report says that food inflation has jumped 10.01% to 14.12% in November 2019. In December, the retail inflation increased from 5.54% to 7.35%, breaching the Reserve Bank of India’s upper limit.

The sharp rise in retail, especially food, inflation, has caused a major setback to the economy where the current fiscal growth rate is at 5%, the slowest in the last 11 years.