Prices of Onions: An Analysis

India is a traditional exporter of

over 2008-09

fresh onions (Mathur 2001). Soon

the country was exporting over

5,000 tonnes of onions worth

Rs 106.69 lakh. Exports of onions

started expanding rapidly during

the 1960s and reached a high of

5,12,000 tonnes in 1996-97. There

down in the important states of Maharashtra, Karnataka, Gujarat and Haryana in 2009-10. The magnitude of decline in production of onions was the highest in Gujarat (24%) followed by Maharashtra (20%) and Karnataka (14.42%). Recent reports suggested that the same situation repeated itself during 2010-11 season, resulting in reduction of onion production to the extent of 30-40% in different places. Samra et al (2006) reported that the crop suffered huge losses due to abnormal weather events during rabi 1997, kharif 1998 and kharif 2005 causing considerable losses to producers and consumers drawing the attention of the government to urgently take up remedial measures to overcome the crisis.

Cooperative Marketing Federation (NAFED) and now through some other agencies. Such agencies are protecting the domestic consumer and producer from unduly high prices and gluts as well. The cause of fluctuations in the exports may be due to the occasional restriction put on exports (Sudhir 2004), keeping in mind the domestic require ment. No doubt, exports of onion have fetched the country valuable foreign exchange and at the same time have given high price per tonne to the producer. The profitability and the potential offered by the exports of onion are evident from the fact that, on a national basis, the area, production and yield of onion have steadily increased by almost two and a half times between 1980-81 and 2008-09 (Table 1).

A policy decision was taken on 2 November to reduce the minimum export price (MEP) of onions to encourage exports, in expectation of a drop in the prices of onions during the kharif harvest. On the contrary, unseasonal rains in Maharashtra and Karnataka damaged the kharif crop, resulting in lower arrivals. This r esulted in a spurt in onion prices leading to a decision to increase the MEP on 15 November to curb exports.

To increase the supply of onions in the domestic market, another decision was taken on 20 December to significantly increase the MEP and the exports of onion were banned until 15 January 2011 due to the sudden spurt in prices. Further, on the next day an export ban until further

o rders was imposed by the directorate general of foreign trade.

Exports of onions from India are regulated and permitted only through certain designated canalising agencies. One of the prime agencies is the NAFED, which is the sole agency for exports of onion from India.

NAFED intervenes in the domestic marketing whenever there is glut and prices reach uneconomical levels for onion. Prices prevailing in major markets all over

Table 3: Month-wise Exports of Onions during 2010-11

Month Qty (MT) Value Price (Rs Lakh) (Rs/Tonne)

Source: NAFED.

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the country are reviewed every day in this process. Procurement prices of onions are decided by NAFED on the basis of the cost of production, and procurement is initiated in the markets and from the farmers directly. In the event of a large rise in prices, the commodities are sold at a controlled price to the consumers through its outlets of other agencies.

Seasonality in Arrivals and Prices

Depending on the production of onion, there is a seasonality in arrivals and prices every year. The changes in arrivals may occur due to a rise or fall in production, poor storage, early harvesting, lack of retention power by growers and exports. Keeping in view the recent spurt in the price of onion, the seasonality of arrivals and prices were analysed for different markets for a period from 2002 up to the latest month for which data was available in 2010.

Jaipur Market

The seasonal behaviour of the arrivals and prices of onions in major markets of the country were calculated and are depicted in Table 4. Onions are grown in both rabi and kharif seasons and can be stored for a longer period compared to other vegetables except potato. Hence, the arrivals of onions take place throughout the year across country. The highest arrivals were during April-July in the Jaipur market and the prices were lowest in these months. The value of arrivals started declining from October onwards and the trend continued up to March. It is also interesting to note that since onion is grown in the rabi season in Rajasthan, the values of arrivals were maximum during April-May.

Delhi Market

The largest arrivals were during June-July and November-December in the Delhi market and surprisingly the market prices were highest during the months of high arrivals (November-December). Arrivals and prices started declining marginally from January until May. However, prices were higher during June and July, despite an increase in the values of arrivals in the corresponding period.

Bangalore and Other Markets

A peculiar situation could be observed from the trend in arrivals and prices of

o nions in the Bangalore market. The values of arrivals started increasing from September and touched a peak during October. Similarly, prices started increasing during August and the trend continued up to January. This situation was noticed mainly due to the entry of more traders for purchase with higher arrivals from different parts of country. Another reason might be that the rising trend in prices persuaded farmers and traders to bring more and more produce to the market.

Trends in arrivals and prices of onions in different markets for November and December 2010 are presented in Figures 1a to 1f. It is evident from the figures that during the third week of December, prices of onions skyrocketed and the arrivals reduced drastically. The selected markets are mainly consuming markets and receive secondary arrivals in sizeable amounts. The pattern of reduction in arrivals in this

Table 5: Volatility of Prices and Arrivals of Onions in Jaipur Market

Month CV CV CV Wholesale to Wholesale Arrivals Retail Retail Price Price Price Markup

November 2008 12.66 24.08 14.75 170.77

December 2008 4.53 24.82 5.77 175.91

November 2009 10.43 36.27 12.37 168.87

December 2009 11.75 22.82 8.57 165.59

November 2010 8.15 33.79 7.46 158.68

December 2010 43.72 27.10 39.46 159.29

particular period (third week of December 2010) might be due to retaining of stocks by onion traders.

Retail versus Wholesale Prices

An analysis of the retail markup between wholesale and retail prices (November-December of 2008, 2009 and 2010) in Jaipur revealed that the retail markup was as high as 176% during December 2008 and 160% during the same month of 2010. Traders opined that retailers are responsible for the exorbitant rise in the price of onions. This higher markup of retailers seems to give credence to the opinion of the traders. The tendency of the retailers who were observed reveals that despite a decline in wholesale prices on a particular day, the retailers sold onions at the previous day’s prices. To prove this, a survey was conducted in different markets in different localities of Jaipur between 24-26 December 2010. It was found that, an average quality of onion purchased from a wholesaler for Rs 20-25 a kg was sold at Rs 30-50 in retail. While the wholesale price of excellent quality onions was around Rs 38 a kg it was sold at Rs 60-70 in retail.

On the other hand, as opined by the traders, it was also observed that, due to the rising trend in prices, farmers have

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resorted to an early harvest with high moisture content leading to weight-loss, for further sale. To make up for this loss, wholesalers and semi-wholesalers have resorted to sale of onions at a higher price.

Volatility of Prices and Arrivals in Jaipur

To measure volatility, the coefficient of variation was calculated for arrivals and prices of onion in the Jaipur market. It is revealed from Table 5 that the variability in daily arrivals ranged between 22.82 in December 2009 and 36.27 in N ovember 2009 depicting no definite pattern in variability. While the magnitude of variability in daily wholesale and retail prices were low until November 2010, they increased to 43.72 and 39.46 in December 2010, respectively, indicating high volatility within a short span of time. It is interesting to note that the retail markup was more than 150%, indicating that the retailer sold the onions at double the wholesale price. In other words, retailers are earning a 40% margin over wholesale prices after meeting about 10% mandi and other charges borne by them. This is also evident from the observation of the researcher from the field. Good quality onions were sold at Rs 3,800/ quintal (Rs 38/kg). While on the same day, the retail price of such quality onions was around Rs 60-70 a kg in Jaipur city.

Conclusions

A time series analysis of trends in area and production of onions revealed that there is significant increase in onion production resulting in a rise in market arrivals. However, due to unseasonal rains, the production of onions declined by about 20% in three major growing states during 2009-10 and 2010-11. To some extent, this reduction in production was offset by marginally higher production in other states like Rajasthan and MP. The magnitude of decline in production did not affect arrivals in the market very much.

The astronomical increase in the prices of onions was a result of hoarding of the stocks in anticipation of a rise in the price and higher retailers markup. The rise in prices was also partly due to the reduction in MEP and consequent increase in exports during November 2010. Moreover, the crop situation was not predicted accurately and thus the information on loss in production was not anticipated by market intelligence.

Staggered planting of onions with suitable varieties can address the supply gap during the slack period, thereby stabilising prices during the year. As part of market reforms, minimum support prices for onions and the implementation of market intelligence systems can help in discovering the right prices for producers as well as consumers.

References

Mathur, V C (2001): “Export Potential of Onion: A Case Study of India”, paper presented in “Regional Workshop on Commodity Export Diversification and Poverty Reduction in South and South-East Asia”, held from 3-5 April 2001, at Bangkok, Thailand by UNCTAD and ESCAP.

Samra, et al (2006): “Impact of Access Rains on Yield, Market Availability and Prices of Onion”, Information Bulletin – Hyderabad: Central Research Institute for Dryland Agriculture (ICAR).

Sudhir, B (2004): “Onion Prices and State Intervention”, Economic & Political Weekly, 14 August, 3684-86.

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