Onion prices are once again on fire.
Just before Diwali festival it is inching
to cross the mark of Rs 100 per kg. Earlier
in August this year onion had a steep rise in retail prices by almost 25% in a
fortnight. Thus from the base of July price of ,once the food for poor has almost doubled.
rules there. Civil
supplies minister of Delhi Haroon Yusuf also joined band wagon and alleged that
hoarders were keeping supplies from reaching Delhi to sabotage Congress's
prospects in the assembly elections. In
September theory put forward was that dwindling supplies have caused this
havoc.
In August the government had termed
that a temporary phase and had made claims that the problem will get resolved
soon with arrival of new crop in the market. By end of September some
correction was seen, but not only the relief got evaporated soon it escalated
far ahead to touch new heights.
Commerce minister Anand Sharma blamed
hoarders for the spike in onion prices and put blames on the state
governments. He forgot that Maharashtra
which has largest share of 28% on supplies is ruled by UPA. Kharif crop comes from Andhra Pradesh and Karnataka
again no need to tell who
Supplies of onion in the market are
low due to several reasons and needs to be understood for corrective steps.
First, planting this year
is less than last year's because growers could not cover their cost in major
growing areas.
Second, kharif onion sowed
in the southern states was partially damaged due to occasional rains.
Third, the Nafed,
responsible for managing demand and supply, has not taken timely action.
Fourth, arrivals from
Maharashtra, a major producer of onions, are low because traders are hoarding
the commodity in anticipation of better prices, while other growing areas,
Andhra Pradesh and Karnataka, are unable to fill the supply gap from
Maharashtra because of high moisture content in the new crop.
Fifth, the weakening rupee
has augmented profits on exports despite the imposition of minimum export price
of $650 per tonne.
Consequently, around two lakh tonnes
less of onions was kept in cold storages while exports increased by six lakh
tonnes during the last few months. The government expects that price of this
politically-sensitive commodity will moderate from October after the arrival of
new onion planted in kharif season in Andhra Pradesh, Karnataka and Tamil Nadu.
However, some analysts feel that the onion prices will not cool down due to
relatively low acreage, partial damage of production by rains and attractive
export price.
The wholesale price of onion in
growing states is Rs 45-50 per kg. On
Tuesday, the average wholesale price of the new crop at Lasalgaon was Rs 3,900
a quintal as reported by TOI. However, retail prices in different places are Rs
80-90 per kg. The huge gap of Rs 25-40 per kg in wholesale and consumer prices
implies a margin of more than 50%. After subtracting the cost of logistics,
10-15%, the difference in cost price and selling price is still high.
A huge markup is taking place in the
retail chain and traders are cornering huge profits. Onion prices have had a
tumultuous political history and, therefore, the government is trying to
control the price rise. It could impose an export ban or revise the minimum
export price upwards and limit stocks for traders. However, these short-term
measures would have a limited impact on prices and in solving long-term
problems related to production and marketing of this essential commodity.
It seems that government agencies
like Nafed are unable to efficiently monitor price rise regularly in the
domestic market. Also, it does not take timely remedial action when there is a
probability of a major shortfall in supply. So far, the government does not
have any effective regulatory cell to monitor and foresee such abrupt increase
in prices of essential foodstuffs with inelastic demand.
The issue of rising onion prices is
symptomatic of a longer-term problem, which requires serious thought and quick
action in food management. Warnings of a spurt in onion prices have been in the
public domain for the last 3-4 months but the government has not responded with
the required urgency.
Some speculation and hoarding must be
taking place. But blaming only these for the price rise does not seem logical.
Economists and the media have been alerting policymakers on this subject. A
review of the causes of onion price rise needs to differentiate between
long-run and short-run shortages since each has to be tackled differently.
The demand and supply gap is a major
factor that needs deeper probing. The onion price rise is not an overnight
phenomenon and cannot be attributed merely to reduced market arrivals from the
major growing states. Rather, it is the result of production not keeping pace
with demand, inefficient retail chains and lack of regulation in the form of a
cap on consumer prices of food commodities.
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