What measures have been taken by the government to tackle spike in onion prices?

Published: September 30, 2019

To tackle the increasing price of onions the government has taken measures such as imposing of a minimum export price (MEP) of $850/tonne, followed by a central team of bureaucrats visiting Lasalgaon which is India’s largest wholesale market of onions, imposing stocking limits on traders, and sometimes even income tax raids on onion traders.

Efficacy of the Policy Measures

  • When seen at the trends, there is a rise in onion prices every year in September. The standard response for this cyclic trend is the imposition of MEP. It has to be noted here that while the government is hyperactive in imposing restrictive measures such as MEP there is little response when there is a downfall in prices. This is affecting the return for farmers.
  • This inherent consumer bias in agri-product pricing is drastically affecting the returns for farmers who are already shouldering economic crisis due to decreasing returns. These measures are not only anti-farmer they are also contrary to the vision of doubling farmers’ incomes.
  • Over the years, India has emerged as the largest exporter of onions in the world. India exported about 2.4 million tonnes in 2018-19 out of a production of 23.5 million tonnes. It takes years to build export markets imposition of such abrupt export restrictions makes India an unreliable exporter. This adversely hits the unit value of exports. The damage caused due to these quid pro restrictions are far greater compared to the short-term gains the government is eyeing with an inherent consumer bias.

How government can tackle price rise?

NAFED Procurement

NAFED, which is entrusted with price stabilization must procure at least 2-3 lakh tonnes at the rabi harvest time (April-May). This ensures that farmers would get at least Rs 12-15/kg when they were getting Rs 4-8/kg due to fresh arrivals. This will achieve twin benefits of helping farmers to get remunerative prices by avoiding price crash and releasing them when there is cyclic trend of price rise will protect the interest of consumers.

APMC Reforms

Studies show that onion farmers get a mere 29 per cent share of the consumer’s rupee. The rest is attributed to costs and margins of middlemen, with retailers apportioning the highest share.

The Majority of Onions are traded through APMCs in India. These APMC markets are controlled by powerful traders and commission agents with much less bargaining power for farmers. The prices are further compounded by mandi fees and commissions. These escalate prices further without much value addition or benefit to farmers or consumers. The government must address these concerns with APMC reforms.

Substitutes and Value Addition

The Ministry of Food Processing Industries must pitch in by promoting the use of dehydrated onions (flakes, powder, granules) and value-added products such Onion Pastes among domestic households and institutions like the armed forces, hospitals, restaurants and schools (mid-day meals).

These substitutes will take the pressure off fresh onions during the lean season. India exports 85 per cent of its dehydrated onions and is the largest exporter of dehydrated onions in the world. Dehydrated products are much cheaper to store and are more durable. This in addition to checking spikes in onion prices will reduce wastage and help farmers to get a fair price by promoting value addition.

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