After tomato, onion prices set for eye-watering rise

Onion stocks from the rabi season, grown between December and January, are expected to deplete soon owing to a fall in its production early this year.

Onion prices in key markets across the country have risen sharply and even doubled in some places, including at Maharashtra’s Pimpalgaon and Lasalgoan Agriculture Market Committee, Asia’s largest onion market.

Onion prices jumped from Rs 1,200 per quintal on August 5 to Rs 1,900 on August 7. They stood at Rs 2,500 a quintal on August 9.

Currently, retail prices of onions are hovering around Rs 30 a kilo. They are expected to rise in the coming weeks and hit Rs 60-70 a kilo by early September.

Decrease in supply

Experts say prices have surged due to speculative buying following decreased acreage of onions this monsoon as well as depleted carry-forward rabi stocks.

The sown kharif area for onions as of July 31 was 13 percent lower compared to last year at 68,000 hectare, data from the agriculture ministry showed.

"Last year’s number was already low year-on-year (YoY). The lack of rainfall in most areas of Maharashtra has been a drag on sowing this year. Seed sales of onions have also fallen by about 30 percent this year," independent farm sector analyst Deepak Chavan said.

Meanwhile, stocks from the rabi season, grown between December and January, are expected to be lower owing to a fall in production early this year.

Also Read: Onion prices expected to increase from early September: Report

"Rabi stocks in the open market are expected to decline significantly by the end of August instead of September, extending the lean season by 15-20 days, which is likely to expose the market to tightened supplies and high prices," Pushan Sharma, Director at CRISIL, wrote in an August 4 report.

High temperatures that hit the country in February led to early maturity of the rabi crop across the key growing states of Maharashtra (49 percent of all-India output), Madhya Pradesh (22 percent), and Rajasthan (6 percent). In addition, unseasonal rainfall in these regions in March affected the quality of onions and reduced their shelf life from six months to four to five months.

Due to the reduced shelf life of rabi onions and panic selling in February-March, the demand-supply imbalance is expected to reflect in even higher onion prices in the lean patch at the end of August, as per CRISIL.

Slump on the anvil?

Hoarding has been seen as another reason for the rise in onion prices.

"Traders in the industry have started hoarding onions, storing them in large quantities as they expect a shortage to soon take over the market," the head of a Maharashtra APMC mandi told Moneycontrol on the condition of anonymity.

"Areas around Pimpalgaon and Lasalgoan have several storage units, and increasing the storage capacity when high demand is expected is the norm," the APMC official added.

So, when will onion prices cool? Experts say October, when the next supply of onions is expected to hit the market. However, a "major slump seems unlikely" as annual production is estimated at 29 million metric tonnes – only 7 percent higher than the average of the past five years – the aforementioned CRISIL report said.