Poor storage, panic imports, govt failures led to 2019 onion crisis. It could happen again

Excess monsoon destroyed the kharif onion crop, but there was much administrative failure that led to the prices crossing Rs 150 per kg.

Stock limits imposed on onions under the Essential Commodities Act led to skyrocketing prices late last year | File photo: PTI

New Delhi: The onion crisis that hit India last year may have eased now, but it has once again put the spotlight on poor planning and inadequate crisis management by the government.

Onion prices had skyrocketed beyond Rs 150 per kg, hitting highs of Rs 160-180 in the winter of 2019, before stabilising again. But the market is still reeling under the impact of the crisis — a testament to the government’s shortcomings in handling it.

The exchequer is staring at a loss of a few hundred crore rupees, as thousands of metric tonnes of imported onions lie rotting. States that had committed to procuring the imported onions are now reluctant, as domestic produce has started coming in at much lower rates, and its taste is much more suited to the Indian palate. The government is now planning to distress-sell the imported ones to hotels and hospitals at one-third of the price it paid to procure them, which was Rs 45-50 per kg. In some cases, the selling price is as low as Rs 10-15 per kg.

This is hardly a one-off case. The bigger story is one of unpreparedness, mismanagement, inadequate storage facilities and bureaucratic apathy, and the government’s eleventh-hour interventions have only served to aggravate the situation, hurting farmers’ incomes as well as those of commodity trade markets.

How NAFED wasted buffer stock

Just before onion prices shot through the roof, the National Agricultural Cooperative Marketing Federation of India (NAFED) wasted around 53 per cent of the buffer stock of the kitchen staple, which could have helped tide over the following crisis.

Under the Price Stabilisation Fund, NAFED managed a buffer stock of 57,372 metric tonnes (MT), which was stored in Maharashtra and Gujarat. However, since August, when onion prices in the retail market crossed Rs 40 per kg, the central agency could only disburse 26,700 MT among the states and other agencies.

The rest of the buffer stock had begun to exhibit signs of decomposition, such as sprouting and foul smell, forcing NAFED to dispose of it in the local market, at prices lower than the procurement cost. NAFED’s negligence in storing the onions in traditional godowns in Maharashtra and Gujarat, which were flooded during the monsoons, was the prime reason for this wastage.

The buffer stock had been procured from these states at an average rate of Rs 12.5 per kg, higher than the modal rates in mandis (Rs 10 per kg), but it was sold to the states at about Rs 15.5 per kg, which hardly recouped the transportation cost of Rs 5-8 per kg that was added on.

The problem is, the country could face a similar situation again, because warehousing and storage are still ill-equipped to handle the bumper produce expected in the rabi season.

Excessive monsoon caught govt napping

The crisis began in August 2019 when abnormally heavy monsoon rains damaged the kharif crop of onions. This led to low market arrivals, and thus, inflation in onion prices by Rs 8-10 per kg per week.

The destroyed crop was meant to keep the prices balanced during the lean supply period from October to December, until fresh produce from the late kharif crop hit the market.

But the government only pressed the panic button once the prices in the retail market surged beyond Rs 40-50 per kg. It imposed stock limits and banned onion exports on 29 September under the Essential Commodities Act, and agriculture experts said this exacerbated the crisis.

Now, retailers could only stock 100 quintals of onions, while wholesalers could stock 500 quintals. This stock limit was later reduced to 20 and 250 quintals respectively. The idea was that this would prevent further price rise by not letting traders hoard onions. But that failed, and prices even crossed Rs 150 per kg in November-December.

Experts said interventions such as the imposition of stock limits spike up the volatility of the wholesale and retail prices of the commodity, instead of smoothening them.

A senior official from the consumer affairs ministry told ThePrint: “The stock limits forced the traders and wholesalers to dump most of the kharif crop in October itself, which led to an even more acute shortage of onion availability in November onwards.”

The official added that without stock limits, traders would have stored a part of their stocks to ensure seamless supply, with usual marginal inflation of the product at stable prices throughout the year.

Even the 2019-20 Economic Survey criticised the implementation of the Essential Commodities Act, saying it hampers the development of storage infrastructure in the long term. This, in turn, leads to an increase in volatility in prices owing to the frequent shocks from production and consumption end, serving the opposite purpose to what it’s intended for.

But with assembly elections about to take place in Jharkhand and then Delhi, the government panicked further and brought in officials from the Intelligence Bureau, the Research & Analysis Wing, the Enforcement Directorate and the Income Tax Department to work with the agriculture and consumer affairs ministries to check onion prices by gathering intelligence about the movement of the commodity and the money related to it.

The rush to import

The government then approved the import of 1.2 lakh MT of onions, meant to be distributed to the states to cool down prices.

The import process was finalised for 41,950 MT, out of which a tender for 5,000 MT was cancelled in the last week of December, bringing the total import order down to 36,950 MT.

However, the imports from Egypt, Turkey, the Netherlands and other countries were marred by repeated delays, owing to complex tendering, heavy security deposits and stringent quality norms set by the government. This, in turn, defeated the whole purpose of importing onion.

By the time imported onions arrived, the local market got flooded with domestic produce.

The government has imported about 36,500 MT of onions, as against the original demand of 33,139 MT from states. However, this demand was reduced to 14,309 MT after states began backing out, citing the high price of the imported onions and the differences in taste.

So far, states have picked up just 2,609 MT — or 8 per cent — of the imported onions. The total cost of import was Rs 226 crore, but states have picked up only Rs 17-19 crore worth of onions. The rest are rotting at Mumbai’s Jawaharlal Nehru Port.

Dr Arabinda Kumar Padhee, director, International Crops Research Institute for the Semi-Arid Tropics, told ThePrint that the import process left a lot to be desired, especially in terms of timing.

“The onion crisis primarily happened due to weather, but the imports could’ve been better in terms of arrival time. Imports clashed with the domestic supply flow,” Padhee said, adding that in the same amount of time, private players managed to import 75000 MT.

With the states refusing to buy the imported onions, the central government asked neighbours Bangladesh and the Maldives to procure the onions that India imported.

ThePrint learnt that while India imported most of the stock at around $600-700 per MT, the government, under distress, offered it to Bangladesh at $550-$580 per MT. But it was too late in the day. Bangladesh and the Maldives refused.

Stock limits still in place

Agriculture experts are left scratching their heads about why the government has still kept the stock limits in place, despite the fall in onion prices from Rs 13,000-16,000 per quintal to Rs 1,500, and despite the fact that the rabi crop is projected to increase by 7 per cent over the previous year.

Nana Saheb Patil, director of NAFED at Lasalgaon APMC, said: “Supply flow of onion is increasing day by day, but traders are still being harassed by stock limit enforcement. One or two days of trade leaves traders with a stock of at least 800-1,000 quintals, but the stock limit allows only 250-500 quintals of storage, which eventually leads to a lower price for farmers and decomposition of onion in mandis.”