Back in the late nineties, onion prices in North India had shot through the roof. The ruling BJP government in Delhi chose to ignore the problem, leading to the party losing out to the Congress in Delhi state elections. It is a full 20 years and the BJP is still to find a way to come back to power in the state of Delhi. That just goes to illustrate how politically sensitive the humble onion can be.
Onions are back
The sharp spurt in onion prices this year has brought onion economics back into focus. Indian onion supply comes from across various states. This ensures a perennial supply into the market. The only risks are delays in the onset of monsoon or a deluge. In 2019, India had a bit of both leading to another sharp spike in onion prices. Scratch the surface and it is a little more complex.
All about onion economics
Technically, India is a surplus onion producer. Against the annual production of 24 million tons, the annual demand is just about 16 million tons. That leaves a surplus of nearly 8 million tons each year but annual exports are just about 3 million tons. That still leaves a surplus of about 5 million tons. In addition, India has also been importing about 4 million tons of onions annually from Egypt and Pakistan. Effectively, it means an annual wastage of 35-40% of the total onion production, which is the real issue.
Managing flows better
Experts believe that the answer to onion economics lies in managing the supply more efficiently. In response to the sharp rise in onion prices, government put restrictions on exports. But that would hardly help at a time when Indian onions are already losing global market share to Pakistan and Egypt. Instead, exporters believe that stipulating a minimum export price (MEP) could be a much better solution. The second issue is about handling wastage. As numbers indicate, wastage is closer to 35-40% and that is a huge cost. It can be resolved with better and bigger outlays for post-harvest infrastructure. Lastly, the government can address the issue of onion prices by creating a buffer stock of 2 lakh tons of onions. That would be a small cost for more certainty in pricing such a sensitive commodity.
Relieving farmer stress
Most onion farmers spread across Maharashtra, Gujarat and Telangana have protested that any onion price hike only goes to the middlemen. On the other hand, farmers get squeezed by tepid onion prices in India and the frequent ban on exports. The previous budget had made a serious commitment to helping farm incomes double by 2022. Onion farmers are an example of farmer stress. If farm incomes have to grow, then government needs to start with its onion farmers! ©