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4 reasons why onion prices surged sharply across India

Few commodities are as politically-sensitive as onion and the rise in prices in several markets across the country has again grabbed headlines

October 23, 2020 / 09:02 AM IST

For the second consecutive year, onion prices have begun to surge at retail outlets across the country. In cities such as Mumbai and Pune, retail prices have zoomed to Rs 100 a kg.

According to the Ministry of Consumer Affairs, the average retail price of onion in the country was Rs 55.60 a kg. In Delhi, prices are ruling at Rs 50 a kg. This means that prices in other parts of the country are not ruling as high as Mumbai and Pune.

On October 22, modal prices or rates at which most trades take place for onion were Rs 6,200 a quintal against Rs 5,800 a quintal a day before. This can easily translate to over Rs 75 a kg and higher at retail outlets in most parts of the country.

A Press Information Bureau (PIB) statement said the prices increased 12.61 percent from a year ago (as on October 20). A surge in onion prices makes headlines across the country since it is one of the most used vegetables in the country.

It is also a politically-sensitive commodity as in the past some state governments have witnessed a change in power in the subsequent elections after onion prices surged.

Dr PK Gupta, Acting Director, National Horticultural and Research Foundation, said there are three reasons for the sharp spike in onion prices this year. Agricultural experts cite ‘premium volatility’ as the fourth reason.

“Rains affected crops in onion growing regions of states such as Maharashtra, Gujarat, Andhra Pradesh, Karnataka, and Madhya Pradesh. The rains have hit the kharif and late kharif onion crops,” he said.

Onion in India is grown in three season — kharif (summer), late kharif and rabi (winter). Kharif onions begin arriving in September, late kharif after November and rabi from April onwards. Heavy rains under the influence of the southwest monsoon last year and this year have affected arrivals.

“The second reason is that there was a shortage of onion seeds. We had a shortage of seeds for rabi last year and for kharif sowing this year. We will face a shortage for rabi sowing this year too,” Dr Gupta said.

India is facing at least 10 percent shortage of onion seeds since most farmers opted to sell their entire produce than hold back for re-sowing during rabi last year after prices surged.

Most farmers thought it fit to sell in view of the high prices. It affected kharif sowing too and a similar situation will likely arise at the time of rabi sowing.

The onion crop was affected by Anthronose and Twister bacteria, whose growth were aided by rain, humidity and temperature, he said. “The problem has been compounded as 70 percent of the kharif onion crop has been affected by heavy rains. Even the late kharif crop in Maharashtra and Gujarat have been affected by rains,” Dr Gupta said, adding that 35 percent of the rabi onion that was stored had rotted.

“Rains during August end affected the Karnataka kharif (summer) onion crop, which comes to the market in September. The recent rains in Andhra Pradesh, Telangana and now in Maharashtra have all affected the crop,” said Madan Prakash, Director of Chennai-based Rajathi Group, which exports onions.

“The problem with the rains is that it affected the seedlings first. The crop had to be resown. Even the resown crop got hit by rains, thus delaying the arrival of onion,” Prakash said.

“Onions don’t arrive in Maharashtra markets now. The vegetable should have arrived in Karnataka Bijapur region and Andhra Pradesh Kurnool region. Both have been badly affected by rains, resulting in poor arrivals,” said Jayachandra Muthyala of Nashik-based Jayachandra Foods Pvt.

“In Maharashtra, onion crop has been affected by the recent rains. Prices have surged because the Nashik region has to meet the entire country’s demand since Karnataka and Andhra Pradesh crops have been affected,” said Sushant Musale, an onion trader at Nashik.

Currently, the onions arriving in Nashik are the ones stored from the rabi (winter) crop that arrive in April. The rabi onion has a larger shelf life and helps the country tide over the demand until the kharif onion crop hits the market. “Even the rabi onions that are arriving now are of poor quality. This is also impacting prices,” Muthyala said.

“We faced the problem of poor quality rabi onions in June when we were exporting. The quality of a significant amount of rabi onions have been affected this year,” Prakash said.

Data show that arrivals are higher this year compared with last year, but since most onions are of poor quality, prices have surged. Muthyala said current arrivals of onions in the Nashik market, which sets the price trend for the rest of the country, were about 60 tractors a day against the usual 600.

Muthalya said some farmers had formed a group on social media and were deciding on when to take their produce to the markets. "This is also affecting arrivals," he said.

The Union government has created onion buffer stocks, but Prakash wonders what a meagre quantity of less than one lakh tonne can do. “Tamil Nadu alone requires 2,000 tonne of onions a day. So, you can imagine all-India demand. But I must admit the Centre has been prudently releasing buffer stocks,” he said.

The fourth aspect for the surge in prices, according to an MCX study, is ‘volatility premium’ due to the anticipated shortage of the commodity. This is one reason why prices almost double at the retail end from the Agricultural Produce Marketing Committee (APMC) markets.

Prices and premium surge alarmingly when there is a lack of substitute for these products. Onion is witnessing such a phenomenon, according to agricultural economists. But Gupta expressed hope that the surge will be reined in quickly since the Centre is taking various steps, especially allowing imports from countries such as Egypt.

(Subramani Ra Mancombu is a journalist based in Chennai, who writes on topics in commodities and agriculture)

first published: Oct 22, 2020 06:48 pm