Centre keeping a tab on rising onion prices but unlikely to intervene

Government had been swift to impose a 40 percent export duty on onion to arrest the price rise on August 20

The Centre is unlikely to intervene to curb rising prices of onions, a kitchen staple that is known to have toppled governments, at this stage, sources said, adding the prices won't go the tomato way.

The government is monitoring prices of the commodity and based on its projections, prices are not expected to cross Rs 50 a kg, sources said.

“We are tracking developments in prices and we see prices have started moving up due to a delay in kharif arrivals and concerns over rabi sowing but projections do not show them rising above Rs 46,” a government official told Moneycontrol, requesting not to be identified.

Shop-end price of onion climbed to an average Rs 36 a kg on October 20 after hovering around Rs 32 last week. A delay in the arrival of the kharif red onion crop has led to a shortage because of delayed and erratic rainfall in Maharashtra and Karnataka.

Onion prices started to climb in Maharashtra’s Pimpalgaon and Lasalgaon wholesale markets, Asia’s largest, in the second week of August. The price jumped to Rs 2,500 a quintal on August 9 from Rs 1,900 a quintal on August 7 and Rs 1,200 per quintal on August 5.

The government imposed a 40 percent export duty on the commodity on August 20 to arrest the price rise.

“We were witnessing a steep trend of rising prices due to a sudden spurt in exports to the tune of 27 percent this year. Once the duty was put in place, the price rise plateaued as exports fell 14 percent by the end of August,” the official said, adding the government was not planning to intervene now.

“We do not see prices going the tomato way. They should not rise above the Rs 50 mark. Even if they stay elevated till the end of the year, the government will not intervene,” the official said.

Tomato prices shot up to Rs 250 a kg in retail markets in July after unseasonal rainfall hit production as well as supply.

Kharif crop

The delay in the arrival of the kharif onion crop will likely be compounded by a fall in output. The kharif produce is likely to be 7-8 percent lower on year, according to Pushan Sharma, director–research, CRISIL Market Intelligence and Analytics.

“Rabi stocks in the open market declined earlier than usual, by the end of August instead of September, extending the lean season by 15-20 days, which is exposing the market to tightened supplies and high prices," Sharma added.

Prices are expected to plateau once the kharif crops come in.

“While there may be a 10-15 percent rise in onion prices by the end of October, the prices should stabilise again once kharif output comes in full force,” said Sanjay Gupta, MD, National Commodities Management Services Ltd.

While onion prices may moderate after the kharif crop comes in, they are still expected to remain elevated.

“There is no visibility for prices to come down. The heavy rainfall during the summer crop harvesting in March and April has resulted in reduced farm production, increased storage losses and gradual quality deterioration over time,” said Varun Khurana, founder of Otipy, an online platform for fresh produce and daily essentials.

Khurana said prices would remain firm till Diwali on November 12 due to high demand during the festival season. The drop in prices might not be dramatic once the festival season was over.

“This year, limited rainfall has resulted in a reduced forecast for the winter crop in November and December. Hence, prices will not fall much till December end, as of now till fresh crops come in full supply from parts of Rajasthan, Haryana and Madhya Pradesh, which can only happen by the end of the year,” he said.

NCML’s Gupta agreed. “Trade will wait for estimates of kharif output as well as of rabi sowing and decide how storage will take place. If kharif numbers are significantly low and rabi sowing is not at par, prices can remain under pressure for long,” he said.