Running rings around onion prices

August 16, 2013

(Any opinions expressed here are those of the author and not of Thomson Reuters)

The size and swiftness of the current price spike in onions has surprised everyone, even those who have been dealing with India’s most politically sensitive commodity for decades. How come retail prices have doubled in Mumbai in a week? Why did prices at Lasalgaon, India’s largest wholesale onion market, rocket 38 percent on Monday?

Sure, stocks are low after a drought last year in Maharashtra state, the top onion producer in the country. And there have been reports that this year’s crop is damaged in some pockets because of heavy rains – but that’s just a few thousand hectares.

It’s getting so bad that the government has had to cease its mantra of buy less, export more for other costly commodities and import onions for Indians to cook their classic dishes.

Mumbai housewife Radhika Patel can partly explain things. She bought 10 kg of onions at a Reliance Fresh grocery store in the financial capital – five times the amount she normally buys for a week’s use. This time, she picked up two bags of five kg each because “news channels were saying prices will rise to 100 rupees per kg.” So she thought buying in bulk at 58 rupees a kg was a smart move. Reliance Fresh has seen a spurt in sales of five kg bags compared with onions sold loose.

Television channels and other media have hyped the 100 rupees per kg fear this month, busy reporting how onion prices are bringing tears across the country. That prompted consumers to buy more and advance purchases.

If a few million people from India’s 1.2 billion population decide to do something, there’s little to stop them. Take gold, for example. Despite nearly a dozen restrictions to bring down gold imports, they more than doubled in the June quarter over a year ago, as people thought it was a good time to buy.

For onions, the sudden rise in retail demand ensured prices stayed high. And sensing that demand was strong despite the price rise, vendors started charging more. The difference between retail and wholesale prices has soared to 30 rupees from 10 rupees in the first week of July.

Everyone in the chain – from traders to wholesale suppliers – has jumped on the bandwagon. There has also been media speculation about hoarding by traders. But onions are not easy to hoard – last year’s crop can’t be stored for more than a month and the new one, planted during the monsoon season, won’t have a shelf life of more than 45 days. And prices are volatile – the last time onion prices soared in December 2010 and January 2011, they halved within a month as more supplies hit markets.

It’s no different this time and onion prices will be one thing the embattled Congress-led government doesn’t need to worry about. Although prices will stay high till mid-October, they should start falling as new supplies arrive.

By January 2014, wholesale prices could fall back to under 10 rupees a kg as farmers, tempted by current high prices, boost production. Some farmers could be hit by huge losses then – effectively setting the scene for the next price rise a year ahead.

One comment

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Good reporting on why its happening.. the problems we all know and can figure out the WHYS..but where is the solution?
Surely the Govt is responsible, they have failed in basic governance, in keeping a narrower gap between supply and demand, whatever the reasons.
How else does one control food inflation?

Posted by LaxmiLobo | Report as abusive