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The Price Of Oinons

Updated: April 16, 2011 11:06 am

Onion prices continue to make headlines: this time for the reason that prices have fallen to such rock bottom prices that farmers are refusing to bring their stocks to the markets. In a normal year, this is the season for onion exports to the Gulf, but on account of the ambivalent policy of the government with regard to export of onions, the Minimum Export Price (MEP) has been pegged at such high levels, that Indian onions stand no chance to their competitors, viz Pakistan which has an MEP of $ 200 per tonne as against the Indian MEP of $275 per tonne (revised to $225 per tonne vide DGFT notification on March 24). It may be mentioned that India had banned the export of onions in December 2010 when the domestic prices had hit the roof (up to Rs 80/kg in retail markets). However, even after the prices had stabilised by the end of January, and the market was flush with arrivals of the late Kharif crop in February, the ban on export was not lifted. Finally when it was lifted in the first week of March, the MEP was kept at $600 per tonne, which was absolutely unrealistic, and no export took place. While it has come down from this level, the fact is that if MEP has to be revised at regular intervals, there can be no ‘long-term strategy’ on exports. It is therefore difficult for organised players, especially PSUs and multi-state co-operatives with a diversified membership base to leverage these opportunities as and when they arise, because decision making in such organisations cannot be as nimble as the market requires.


The larger issue is whether we should have an MEP for onions at all? Why should the focus not be on increasing the production, storage and price discovery systems within the country, rather than imposing an artificial barrier which can be breached, both on account of the long porous borders that the country has with Nepal and Bangladesh, and also because of clubbing onion exports with other exports in the same or subsequent invoices within the course of a financial year.

                The ostensible reason for an MEP for onions (and for that matter, any other commodity) is that the domestic consumer should not suffer on account of price volatility. Thus, every major stakeholder, producers, consumers, exporters, co-operatives and the relevant ministries are consulted before a view on MEP is taken. However, this does not address the basic issues of demand and supply. Reducing exports in months of low production in India can only have short-term impact, and also leads to a notification speculation, in the sense that traders will speculate on the likely MEP in the next notification. Rather, systems have to build up to ensure that state governments and leading agri-business PSUs and co-operatives build strategic reserves of onion for the lean production months. Nafed has indeed taken a positive step in this regard by writing to all state governments that strategic reserves for the lean period (October- December) should be built up in the April-June months when the wholesale prices in onion production areas are expected to rule between Rs 400 and Rs 700 per quintal. These can be stored in the production areas itself and sent to the designated consumption centres as per the demand received from the civil supplies corporations or consumer bodies from these areas.

                This strategy has several advantages. The fact that ten to fifteen lakh tonnes of onions are available in reserve will prevent hoarders and speculators from raising prices. It will also ensure that farmers get a better price in the production season itself, and there is no distress sale. Thirdly, it will also encourage investments in the onion storage capacity in the country. As things stand today, the onion storage capacity in the country is in the range of 20-25 lakh tonnes only, as against an annual production of 130 -135 lakh tonnes. Efforts are currently under way to enhance the onion storage capacity, especially at the farmer’s level to at least 35 lakh tonnes to ensure that the primary producer can hold stocks till the market situation improves.


Having said this, the long-term strategy should focus on improving production for the global markets as the Gulf region’s requirement of this commodity will continue to grow, and India is a natural ‘source point’. It will not be difficult for India to make the relevant interventions to enhance production from current levels to 150 lakh tonnes, which would then ensure that even if larger volumes are exported, the prices for domestic consumers will be well within the acceptable range. India must also take steps to ensure that onions are branded as Indian onions so that long-term contracts can be made in this sector. The current system of seeking an NOC on exports from canalizing agencies led by Nafed can give way to a system of ‘online intimation’ to Nafed, or any other agency that the government may designate. The purpose of this information is more to ensure a proper price discovery than price intervention.


Does the Competition Commission have a role? This is important because the CCI also launched an investigation into possible cartels behind the sudden peak in process in December. This writer feels that CCI must make an analysis of the marketing system under the APMC Acts. The study will reveal that the number of ‘traders’ is restricted, and there is no way in which a new entrant can get into any mandi, unless a vacancy is created, which will never happen as existing players have a ‘proprietary right’ on the ‘gaddi’. Why can’t onions be traded on electronic auction platforms which allow anyone (with adequate guarantee fee to back the transaction)? Unless price discovery takes place in a transparent manner, the price of onions will continue to be determined by extraneous considerations.

By Sanjeev Chopra

(The author is Joint Secretary, Ministry of Agriculture, Government of India. The views expressed are personal)

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