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Why are onion prices fluctuating?

What is the problem?

Onion prices peaked in mid-October in parts of the country on account of squeezed supplies from the key bulb-growing States, bringing to the fore the recurring price volatility of this vegetable which the country witnesses almost every alternate season.

The wholesale onion prices at the Lasalgaon Agricultural Produce Market Committee — the country’s largest wholesale onion market in Maharasthra — ruled ₹22-23 a kg in mid-October on tight supplies as supply had dropped. Consequently, the retail prices jumped, and in the national capital New Delhi, the price hit ₹40 a kg, before the Union government reviewed the price and availability of onion and asked the Delhi government to make onion available through its public distribution system outlets as was done in 2015 when prices had spiked.

Has supply dropped?

Government data show production of onion has fallen marginally during the 2017-18 crop year that ended June 30. The third advance estimates say onion output is likely to be around 22 million tonnes during the reported period, lower than 22.4 million tonnes in 2016-17. However, compared to the average production of the past five years, it is about 12% higher.

Traders point out that the supply of onions in the Lasalgaon market mainly dropped owing to a drought-like situation in parts of Maharashtra, where the onion’s Kharif crop is likely to be lower. However, they are hopeful that as the arrival from neighbouring Karnataka and Madhya Pradesh has started picking up, prices will moderate. Jaydutta Holkar, chairman of the Lasalgaon APMC, says supplies are gradually rising, and on October 31, the average wholesale price of the onion was around ₹10-11 a kg. “Onion price surged only for a couple of days in mid-October but later as the arrival increased the price has dropped. However, those selling in the retail have kept the price up only to derive more profit…,” he says.

Traders and the government hope prices will moderate in the coming days as the supply is expected to improve as soon as the harvest begins in the onion-growing areas of Maharashtra, Andhra Pradesh, Karnataka and Rajasthan.

Why this recurring volatility?

In India, onion prices are extremely volatile. While the production in the country over the years has been rising, sharp price spikes are experienced almost every alternate year. The key reasons for severe and frequent price shocks are attributed by agriculture experts to production fluctuations and changes in the nature of demand.

The growth in onion production has risen from below 5.5 million tonnes till 2002-03 to nearly 20 million tonnes in recent years. Experts point out that the annual growth rate of above 13% in onion production since 2000-01 is phenomenal and no other food crop in the country shows this type of growth in the recent years.

However, domestic and overseas demand for onion seems to be outpacing growth in supply, points out Professor Ramesh Chand, a member of the NITI Aayog. He says the per capita demand of onion has increased from 4 kg in 2002-03 to more than 13 kg in recent years. “This growth in per capita demand for onion reflects a mind-boggling change in preference of Indian consumers for onion. It also implies that the effect of spikes in onion price on household budgets is getting heavier. It looks strange that increased availability is associated with the increase in price volatility rather than providing flexibility to absorb small shocks in supply,” he says.

What is in store?

The price trends of onion over the years show that high prices prevail only for a few months and the excessive volatility can be managed through appropriate mechanisms. Professor Chand says a multi-pronged strategy involving technology, extension, public stocks, and market intelligence is needed to address excessive volatility. “Stocking by public sector parastatal like the NAFED will also keep a check on exploitation and market manipulation by private trade, besides price stabilisation,” he adds.

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