Onions, a staple in kitchens worldwide, have become a source of worry in India! Prices have skyrocketed, retail inflation remains high, and farmers face a dilemma. The government’s response – an indefinite extension of the export ban imposed last year – has brought temporary relief but raises long-term questions. “The export prohibition on onions valid till March 31 has been extended until further orders,” said a Directorate General of Foreign Trade notification. Let’s delve deeper into this complex situation.
A Story of Spiking Onion Prices and Government Intervention
In December 2023, alarm bells started ringing. Onion prices, a key indicator of household expenses in India, had doubled from Rs 30/kg in September last year to Rs 60/kg. This triggered government intervention in the form of a ban on onion exports. The goal was to increase domestic availability and cool down skyrocketing prices.
In October 2023, to discourage exports and improve domestic supplies, the government had imposed a minimum export price (MEP) of onion at $800/tonne, which translates into Rs 67/kg. Earlier, the government had imposed a 40% export duty on onions in August last year.
Rabi Harvest Arrives
The arrival of the rabi onion harvest, typically seen as a price stabilizer, hasn’t delivered the expected results. Wholesale prices remain elevated at Rs 2,500/quintal compared to Rs 1,500 last year, and retail prices hover around Rs 30/kg, up from Rs 20/kg.
The Rationale Behind the Extended Ban on Export
The government’s decision to extend the export ban reflects concerns about potential shortfalls in rabi output, which contributes a significant 60% to India’s annual onion production. Additionally, retail onion inflation remained stubbornly high at 22.1% in February 2024, while prices rose by 29.69% in January 2024, highlighting the urgency of managing domestic prices.
Farmers Caught in the Crossfire
However, the farmers groups have demanded lifting the ban on onion exports imposed as supplies have risen in the market. While the ban aims to stabilize domestic prices, it presents a challenge for farmers. Groups representing onion producers argue that market supplies have risen significantly since the ban’s implementation. They point to a sharp decline in mandi (wholesale market) prices, with current rates struggling to cover production costs.
“Since the imposition of exports ban last year, the mandi prices declined to Rs 1,200/quintal at present from around Rs 4,500/quintal prior to the imposition of shipment ban last year,” Jaydutt Holkar, Director, agricultural produce market committee (APMC), Lasalgaon, Nashik, Maharashtra, the hub of the country’s wholesale trade told FE.
Holkar said that prices are expected to fall further with arrivals of rabi crops set to peak in the next few weeks. “Current prices of around Rs 1,200 a quintal do not even cover the cost of the production of onion,” Balasaheb Misal, former director, Manmard (Maharashtra) mandi board and an onion farmer, said.
The Global Impact: A Ripple Effect
India’s export ban has had international repercussions. Countries like Bangladesh, Malaysia, Nepal, and the UAE, heavily reliant on Indian onion imports, have witnessed price hikes in their domestic markets. Recently, the government had allowed 50,000 tonne and 14,400 tonne of onion exports to Bangladesh and the United Arab Emirates, respectively, but it falls short of a full reopening.
In the current fiscal, India has exported around 1.6 million tonne (MT) of onion. India exported a record 2.5 MT of onion 2022-23, an increase of 65% from the previous fiscal.
Recently, the agriculture ministry has estimated that onion production is likely to fall by 16% to 25.47 MT in the current crop year compared to 2022-23 due to a decrease of 3.43 MT in Maharashtra, the biggest producer of the staple vegetable.
Finding the Right Balance
The onion issue exposes the delicate balance the governments need to strike between ensuring domestic food security by controlling prices and allowing farmers to access export opportunities. Here are some key considerations:
- Accurate Crop Forecasting: Strengthening crop forecasting mechanisms could provide the government with a clearer picture of onion production, allowing them to make informed decisions regarding export bans and minimum export prices.
- Supporting Storage Infrastructure: Investments in better storage facilities can help regulate the release of onions into the market throughout the year, preventing price spikes during off-seasons.
- Promoting Domestic Onion Distribution: Streamlining and strengthening domestic distribution networks can ensure onions reach consumers efficiently, minimizing price manipulation by middlemen.
- Encouraging Alternative Markets: Exploring alternative export markets that offer fair prices to farmers would lessen dependence on a few key importers.
Conclusion
The Indian onion story is a reminder that ensuring a stable and affordable supply chain requires a multi-pronged approach. Collaborative efforts between the government, farmers, traders, and consumers are vital. By investing in infrastructure, improving forecasting, and fostering open communication, India can navigate this complex situation and ensure a sustainable future for its onion industry.
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