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Why Onion prices often shoots up in India?

  • Category
    Economy
  • Published
    15th Oct, 2019

Recently, onion prices have skyrocketed in the wholesale and retail markets.

Context

Recently, onion prices have skyrocketed in the wholesale and retail markets.

About

  • Onion price has been shooting in the wholesale and retail markets and the central government has taken many efforts to control the increasing price.
  • With elections nearing in Maharashtra and Haryana, the government cannot upset onion growers in rural areas (part of the voter base) and urban consumerswho have to shell out more money for the bulb.
  • Since May 2019, prices in wholesale markets across the onion-growing districts of Maharashtra have been increasing.
  • The ripple effect can be seen in the retail markets where the price of onion has also increased.
  • According to Price Monitoring Cell (PMC) of the Consumer Affairs department, the retail price of onion has increased by Rs 20-25/kilo across the country in the last six months (as of September 2019).
  • Maharashtra, Karnataka, Gujarat, Madhya Pradesh, Rajasthan, Bihar, Uttar Pradesh and West Bengal account for almost 90% of onion production in the country.
  • Maharashtra contributes nearly one third of the country’s production.
  • Farmers across the country take three crops of onions which ensure uninterrupted supply across the year. Of these,
    • Kharif and late kharif are not amenable for storage (has higher moisture content)
    • Rabi crop can be stored for a long period.
  • Farmers usually store their produce in moisture-proof and dust-proof structures to prevent the bulbs from sprouting green shoots.
  • Depending on the price, farmers release their produce, enabling steady supply for retail markets.

Why the price is rising?

  • Hoarding: Hoarding of perishable items is illegal; however, many traders have hoarded onions and are now selling at much inflated prices than before. Therefore, traders and not farmers are benefited when onion prices hike.
  • Low Onion Consumption: The price rise comes during months when onion consumption usually goes down. It goes with the law of demand and supply. For example, it happens during the nine days of Navratri in Maharashtra and the month of Shravan.
  • Delayed Monsoon leads to supply-side constraints: The current increase in onion prices is a fall out of 2018’s drought and the delayed monsoon in 2019. Some onion-growing areas have reported excessive rain and delay in harvest period by a week or so.
  • A combination of factors has led to the increase in prices now.
    • The cultivation area under rabi crop has decreased in Maharashtra. So, it reported a low cultivation in the rabi season of 2018-19.
    • Karnataka received heavy rain during kharif crop’s harvest period, which delayed the arrival of kharif onions from Karnataka.
    • So, the stored rabi crop should have to be supplied to the markets.
    • As the imported onions may not arrive soon, the price of the bulb is expected to stay high.

Steps Taken by Government to control Onion Prices

  • In early September 2019, the state-run Minerals and Metals Trading Corporation of India (MMTC) had floated contracts for importing onions from Pakistan, Egypt, China, Afghanistan, etc.Following sharp criticism, MMTC dropped Pakistan from the list of countries.
  • The Centre also tried to restrict exports by sharply hiking the Minimum Export Price (MEP).
  • In June 2019, the government ended the 10% export subsidy for onion.
  • Anticipating a shortage, the central government had created a buffer stock of 57,000 tonnes, of which some have already been offloaded.
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