India Shedding Tears over onion Prices - a Case Analysis

INDIA SHEDDING TEARS OVER ONION PRICES: A CASE ANALYSIS

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The present case highlights the role of the of the demand and supply factors in the market, to the extent that their interaction, during the period of December 2010 – January 2011, resulted in prices of onions in the Indian market seeing a sharp rise, resulting in average consumers having to pay anywhere between 5-6 times the usual market price (Rs. 15) per kg of onions. With onions perceived by most Indian consumers to be an essential commodity (evidenced in the government later – i.e., July 2014 -  including onions under the Essential Commodities Act, 1955), and with essential goods expected to have relatively low elasticity, this extreme surge in prices and the resultant drastic (forced) reduction of consumption – raised a major outcry across the country.

A variety of factors, ranging from natural demand and supply factors, hinging on variables such as climate and crop seasons – which yield different types of crops, with varying longevity; to man-made forces including artificial supply creation by traders – through hoarding – to increase prices, to price interventions employed by the government, in the form of establishing minimum export price and ceiling prices for the sale of onions; were seen to affect the market in various ways.

The study, talking about how the various stakeholders responded to the crisis primarily by pointing fingers at each other for this price rise; sheds light further, on how, even with India being the second largest onion producer in the world – in terms of quantity produced and area harvested, the overall productivity, is one of the lowest among the major growing nations. As a farmer, this point is of most concern.

While, the overall production cost of onion – a commercial crop – is seen to be comparatively lower than that of cultivating other crops, a variety of factors, particularly, the high rate of post-harvest losses suffered due to the crop nature of being a highly perishable commodity and the coincident lack of sufficient and efficient storage facilities, along with other factors such as lack of dormancy of onion bulbs, infestation of crops etc., have a great negative impact on the economic viability of the crop. Presently available conventional storage methods of onions, have been seen to result in large losses – even in the Rabi crop (which is has a greater expected longevity) – due to weight loss, sprouting and rotting of the stored bulbs. Due to the lack of sufficient storage further, most farmers have been seen to bring their produce directly to the market, unloading their entire stock within a month of harvest – such that when a large proportion of farmers do the same, during the same harvest season, a glut is created in the market, adversely affecting farmers’ earnings- to the extent that at times, they are even unable to recover the cost of cultivation. The seasonal nature of the creation of such a glut, followed cyclically by the market offering a high price to farmers in non-peak seasons – which however, only a few can take advantage of, due to the available storage infrastructure – and the consequent fluctuation in the consumer market, create high uncertainty in the environment, and hamper decision making regarding cultivation in the upcoming seasons.