Tuesday, March 28, 2023
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Can India handle frequent onion crisis without fixing its distortionary farm economics?

Onion prices have surged across India again, ranging from Rs 90 per kilo to Rs 200 per kilo.

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Onion prices have surged across India again, ranging from Rs 90 per kilo to Rs 200 per kilo. Lack of advance planning to streamline supply, shortage of cold storages, haphazard procurement process and limited onion production area have contributed to the shortage. In a knee-jerk reaction, the Narendra Modi government had earlier banned exports to reduce prices.

ThePrint asks: Can India handle frequent onion crisis without fixing its distortionary farm economics?

Storage infrastructure would save the losses states incur by selling onion at cheap rates to consumers

Siraj Hussain
Visiting Senior Fellow, ICRIER

Within three years, wholesale onion prices at mandis have increased from Rs 200 per quintal (Kharif 2017 in Madhya Pradesh) to Rs 7,500 per quintal (Kharif 2019 in Lasalgaon in Maharashtra). Unfortunately, the state governments are willing to spend large sums on selling onion to consumers at cheap rates than on creating infrastructure for storage.

India produces about 230 lakh tonnes of onion every year while the demand is about 200 lakh tonnes. But the storage capacity created with the Centre’s subsidy is only 4.30 lakh tonnes. In 2017, the Madhya Pradesh government alone incurred a loss of about Rs 785 crore in procurement of onion at Rs 800 per quintal and its subsequent sale at a much cheaper rate.

Investment in storage would have reduced the losses incurred year after year during monsoon.

The imposition of minimum export price, ban on export, stock limits and raids by the Income Tax department and police can bring down the prices. But these actions do not address the long-term challenge of attracting investment in modern storage. At present, onion is not stored in cold stores and 30-40 per cent storage losses are incurred during monsoon.

This year, the stored Rabi crop and standing Kharif crop were damaged due to excessive rains and the government is not really at fault for high prices.

Frequent imposition of export bans and action under the Essential Commodities Act discourage private investment in agriculture value chains.

For a sustained supply of produce, we need good storage structures and some flexibility in exports

Arabinda K Padhee
Country director, ICRISAT 

The current onion crisis has been caused due to weather variations. Nobody has control over the weather. Moreover, the weather variations are going to be extreme in the coming days. So, from a scientific point of view, we need to have onion varieties that can withstand these weather conditions.

Also, regarding the ‘consumer vs farmer’ debate, we are worried that the consumers are paying more. However, the farmer should get the maximum benefit. They are the ones toiling in the field. When the rates go up, the price should also percolate down to the farmers, not just to the traders and middlemen.

Imports may not be the long-term answer to avoid these distortions. We need to have pockets where we can arrange onions, potatoes and tomatoes. Also, there is an urgent need for refrigeration and low-cost onion storage structures. On the ground level, I have seen farmers growing the crop but hardly getting any money. If they get good facilities to store their produce, then more value can be added.

This time, the crisis has happened because of weather variability and farm economists can’t possibly predict this situation. To have a sustained supply, we need to have good storage structures and some flexibility in exports.

Onion crisis today is because of unprecedented weather conditions. Govt should have long-term policy

Nana Saheb Dattagi Patil
Board member, NAFED

This onion crisis occurs every three to four years. It creates problems for both the farmer and the consumer. Lack of policies from the government is the main reason behind the crisis. Onion production is also sensitive to climate conditions.

It is usually not a long-term crisis. However, this time, it has lasted longer than a month and at a record-breaking price too. The crop has been damaged due to unseasonal rainfall. Further, global warming makes the situation even more precarious.

Last season, we were getting 50 quintals yield per acre. But now we only get two to five quintals per acre. Five years ago, Maharashtra was contributing to 50 per cent of the entire onion yield in the country. Today, it has come down to 35 per cent. This reflects that the crop plantation has spread across the country. Cultivation has increased with the domestic requirement. So, we are satisfying these conditions.

The crisis today has been caused by unprecedented weather conditions.
The government needs a long-term policy. In India, this policy is handled by the food and consumer affairs ministry. Each time there is an increase in prices, import price is affected. If prices still rise, an export ban is imposed. In case of further increase, stock holding becomes the final measure. This time, all these mechanisms have failed because of the environment.

I think that the government should declare a fair price. There is also an urgent need for storage structures.

Unless farm economics of onion is taken care of, there can be no solution to onion crisis

Shweta Saini
Senior consultant, ICRIER 

Every two to three years, there is a decrease in onion production, which causes an increase in prices. This is followed by an increase in acreage, which results in a glut in the market, leading to a price crash. This cycle has always existed.

However, this time there was an unprecedented rainfall in October. There are two things at play here, the issue of cyclicality and climate change. I see the government’s role in solving both problems. In terms of cyclicality, I feel that there is a need to remove the middlemen or replace them and directly connect the farmers to the consumer. Since the farmer needs someone to aggregate their produce, the government can come in and introduce farmer production organisations (FPOs) at the reform level.

The government can introduce an infrastructural investment where farmers hold back crops during harvest and bring them back into the market when they get right prices. For perishables like onions, they should introduce warehouse receipts at the level of storage. For onions and potatoes, our study found that the government is being excessively restrictive. Farmers who suffered from a bumper crop in a particular year also suffer in the year when they could have made money. There is a need to promote onions in a different form where they can be stored for a longer period – for instance dehydrated onions.

Also read: If 10 years from now you see 30 types of onions in Indian markets, this is how it happened

By Kairvy Grewal, journalist at ThePrint 

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  1. F reeking onion will have no relevance to Indian economy for next 100 years. Obsession with a vegetable is, well, cuckoo like..

  2. post harvest management in onion is required as the production is higher then consumption. Scientific warehousing of onion along with better market access will help farmers and consumers in getting right price for the quality . Warehouse based sales should be encourage in registered warehouses of warehousing regulator ( WDRA) for higher market access and robust price discovery

  3. Better storage facilities for all perishable crops, not just onions, would help both farmers and consumers. That is where public resources should flow, instead of periodic farm loan waivers. There should be no ideological fixation that this should be reserved for government agencies or cooperative institutions. It should be possible for organised retail to get more involved in this process. Treating water as the limiting factor / valuable resource, increasing the area under fruits and vegetables, reducing acreage under wheat and rice, would be desirable.

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