Sep 22, 2011

Why onions continues to bring tears in your eyes.

Within 11 days of imposing a ban on the export of onions, the powerful traders lobby forced the government to lift the ban. Succumbing to pressure from the onion traders, who normally cry hoarse in the name of farmers, the speed at which the onion trade made the government to bend backwards is a pointer to the monumental failure to curb food inflation.

For over 4 years now, ever since food inflation has hit the roof, I haven’t seen so much of political activity as I have observed in the last few days. Triggered by protest by Nasik onion traders, who had refused to partake in daily auction to demonstrate their anger against the sudden imposition of exports ban, the NCP chief Madhukar Pichad had first written to Prime Minister Manmohan Singh and the Commerce Minister Anand Sharma. Maharashtra Chief Minister Prithviraj Chavan had deputed his Agriculture Minister Radhakrishna Vikhe-patil and some of his colleagues to meet Finance Minister Pranab Mukherjee and other concerned ministers.

According to news reports, Prithviraj Chavan had himself lobbyed with Pranab Mukherjee and Anand Sharma seeking an immediate withdrawal of the ban on onion exports. Union Agriculture Minister Sharad Pawar too had thrown his weight behind the agitating traders and had met Food Minister K V Thomas to impress upon him the need to allow onion exports. He had forcefully argued in favour of onion exports at the meeting of the empowered Group of Minister (eGoM) on Tuesday. Knowing the strength Sharad Pawar wields in UPA II, it was expected that the government will give in.

After the much-awaited eGoM that met under the chairmanship of Pranab Mukherjee on Tuesday, Food Minister K V Thomas announced the lifting of the ban subject to a minimum export price (MEP) of $475/tonne. While no quantitative restrictions were announced, the high MEP is expected to act as a damper on onion exports. Seeing the steady rise in open market onion prices for a month or so, the MEP had been steeply raised by $ 200/tonne within a span of a month. In mid-August, the MEP stood at $ 275/tonne.

The high MEP certainly has not dampened the spirit of the exporters who have merrily resumed the daily auction operations in Nasik mandis.

There are reasons to understand the panic the Food Ministry must be under when it decided to impose a ban on onion exports. Knowing well the stupendous rise in the prices of onions in the retail market just a few months back, when for no justifiable reasons the consumer prices had swung to a high of Rs 80/kg, the Food Ministry was certainly being over-cautious. Heavy rains in the last week of August had further slowed down transportation of bulbs from Maharashtra, thereby adding to the woes of the consumers In mid-August, Food Ministry first tried to restrict exports by raising the MEP by $45 to bring it $275/tonne, but it failed to control the retail prices. And when open market prices increased to Rs 25/kg, the panic button was pressed.

For the past three years, September has been the worrying month. Last year, heavy exports undertaken in September were blamed for the subsequent shortfall in onion availability in December when a sudden jerk in prices had brought tears in the eyes of the consumers. When onion prices had jumped from Rs 35/kg to Rs 60/kg in retail last year, Commerce Minister Anand Sharma had said that the price rise was because of hoarding as the country had enough stocks. This year too, when onion prices had begun to show its head, Anand Sharma is on record saying that the price rise is because of hoarding. I remember when the government went into a tizzy last year, the Nafed chief had expressed surprise at the price rise. He told the media that there was roughly 20 per cent more supply, and despite the rain damage to the standing crop in September, the price rise defies any logic.
The legitimate question that follows is then why is the government unable to crackdown on hoarders. More so at a time when onion production was estimated to be at record 145.62 lakh tonnes last year. This year, the crop is still better and estimates point to an overall production of 151.36 lakh tonnes.

Now, let us look at how politics is defining the rise in onion prices. Before even the prices had stabilised to Rs 50-60 per kg last year, Anand Sharma had met some of his fellow cabinet colleagues and impressed upon them the need to support the opening up of multi-brand retail. Finance Minister Pranab Mukherjee, Home Minister P Chidambaram and Defence Minister A K Anthony had taken part in these discussions. Why the urgency? Anand Sharma had replied: “Policy formation is a dynamic process, and we are very progressive and forward-looking.”

In fact, he also met the media the same day (Dec 23) to inform them about the dynamics of multi-brand retail. According to a news report: “While Mr Sharma rejected the argument that there was a link between the soaring onion prices and the opening up of multi-brand retail to foreign direct investment, the demand for liberalising the sector has been intensifying, especially in the wake of wide gap between the wholesale prices and retail prices.” It was therefore quite apparent that the onion price hike in Dec 2010-jan 2011 was a manipulation to justify the approval for FDI in multi-brand retail.

India is under pressure from G-20 leadership to remove all barriers in opening up to multi-brad retail. British Prime Minister David Cameron, US President Barack Obama and the French President Nicolas Sarkozy had during their visits to New Delhi had reportedly impressed upon Prime Minister Manmohan Singh on the urgency to open up for multi-brand retail. No wonder, the government has been trying its best to project the need for big retail. With the political environment is not still conducive, there is no reason to disbelieve that there is a deliberate effort to establish that multi-brand retail remains the only option to bring down the retail prices. 

September-October is generally a lean period for onions. Its arrival in the mandis slackens during these months, and to meet the market demand traders maintain enough stocks from April onwards. With the arrival of the new crop in the second half of October, prices generally ease. Knowing the seasonality of the production cycle, the Food Ministry should have waited for a little more time before the sudden knee-jerk action of banning exports. Such ad hoc decisions when it comes to commodity exports results in a loss of confidence among importers as a result of which the trade suffers. More often than not, exports only help traders whereas onion farmers continue to be paid a fraction.

This brings me back to the original question why the government has been unable to control food inflation. Well, looking at the way the onion traders have forced the government to retract its ban order, the fact remains that I haven’t seen so much of political activity at any time on the issue of price rise. The reason is obvious. No political party wants to ruffle the traders with any stringent action. Traders hold the key to the political purse, and a crackdown against hoarding and speculation would mean chopping off the financial cord. We must therefore learn to live with food inflation. 


Anonymous said...

Excellent analysis. Here're some more numbers to back your analysis:

Year 2008-09
Onion production: 13.56 million tonnes
Fresh onion export: 1.67 million tonnes
Raw onion that is dried and exported: 0.19 million tonnes
Total raw onions feeding into exports: 1.86 milion tonnes or approximately 14 percent of the country's production, which is huge for any single commodity. This naturally makes exporters a very powerful lobby. And when exporter join hands with hoarders (in many cases they are the same), they are unstopable. This is what has happened this year as I found during my tour of APMC mandis earlier this year.

Q. Who wants ban on onion exports?
A. Govt. because it wants it to cool down prices and dried onion exporters as they are unviable if price paid to farmer goes above Rs. 10/kg.

Q. Who don't want a ban on exports?
A. Farmers, hoarders, exporters. The latter two work in tandem while the former plays into their hands with the false hope that s/he would get a higher price. Exporter gains from higher international prices, hoarder from temporary spike in domestic prices, which is why both do not want a ban on exports. Between the two, hoarders gain more as opening up exports gives them a legitimate reason to further jack-up prices by claiming supply constraints. The farmer, as usual, goes back home with barely 2.5 percent of the retail price of his/her produce.

Q. Why does the government ban exports?
A. Because it does not want to act against hoarders. Free market principles does not regard hoarding as illegal and the govt. is following them. On the other hand, the same govt. goes against free market principles and bans exports to increase supply into domestic markets and cool prices because this is politically more palatable and is also easier to enforce.

Q. Does this work in principle?
A. At times it does. The price-crisis period is generally during Sep-Oct and this is when hoarders make a killing. Kharif onion has higher moisture content as compared to Rabi onion and therefore the shelf life is less. Due to this reason exporters also compete against hoarders during this period as they want to ship out their stocks before they spoil.

Q. Why did Pawar open exports this year?
A. One, lobbying by exporters-hoarders lobby. Two, even as I am writing this, farmers in Nasik district are sitting on roadsides with piles of onion which they are unable to sell at anything more than Rs. 2/kg (I have asked a consultant out there to take a few pics and mail them over. Will share them as they arrive); Pawar does not wish to be pelted with onions second time in a row. Politics rather than a non-existent supply-demand mismatch is what dictated the govt.'s hands.

Q. Will farmers now gain since exports have been cleared?
A. Nope. They will still be forced to sell their produce at Rs. 2/kg or marginally higher.

Bhaskar Goswami
New Delhi

Ramesh Dubey said...

आदरणीय देवेंद्र जी प्‍याज निर्यात प्रति प्रतिबंध हटाने की सरकार की घोषणा पर आपने एकपक्षीय विश्‍लेषण किया । यह ठीक है कि 80 रूपये किलो की प्‍याज हमारी आंखों के आंसू निकाल देती है लेकिन वही प्‍याज जब 10 रूपये किलो बिकती (किसानों को तो पांच रूपया भी नहीं मिलता) है तब किसानों के आंख के आंसू देखने वाला कोई नहीं रहता । जून 2010 में दिल्‍ली में पेट्रोल की कीमत 40 रूपये प्रतित लीटर थी जो कि आज 67 रूपये लीटर है । क्‍या किसी ने आंसू बहाया ? यदि पेट्रोल खेत में पैदा होता तो निश्‍चित रूप से हल्‍ला मच जाता । कई बार ऐसा होता है कि किसान की उपज घर में रखे-रखे सड़ जाती है तब किसान के आंसू कौन देखता है ? यदि अंतरराष्‍ट्रीय बाजार में अच्‍छी कीमत मिल रही है तो उसका लाभ लेने में हर्ज क्‍या है । प्‍याज उगाने की दिन प्रतिदिन बढ़ती लागत की भी आपने उपेक्षा कर दी ।

रमेश दुबे

Ramesh Dubey said...

किसानों को उनकी उपज के लाभकारी मूल्‍य के लिए निर्यात अच्‍छा एक विकल्‍प है लेकिन साथ में यह भी देखना हो कि इसका लाभ कहीं वे नकली किसान न उठा लें जो कभी खेत में गए ही नहीं । अत: सरकार को इस दिशा में ठोस कदम उठाने चाहिए लेकिन जमाखोरों, व्‍यापारियों के कंधे पर टिकी सरकारें शायद ही ऐसा लोकहितकारी कदम उठा पाएं । ऐसे में प्‍याज 80 रूपये किलो बिके या 10 रूपये किलो पिसना किसानों को ही क्‍योंकि उनकी नियति को लिखने वाले वे किसान हैं जो अब माननीय बन चुके हैं ।
रमेश दुबे, दिल्‍ली

Prof. J. George said...

kisano ke hit me sochne ke liye samay kis ke pas hai? Krishi mantralay ho ya mananiya pradhan mantri. lagbhag do salon se chali aa rahit khadya mulyon ke mahangai ko rokne me asamarth sarkari tantra simant awanm chote kisano ki duhayi dete aa rahen hai. Parantu iss mahangai ka labh inko mil raha ya nahi iski sudh kisko hai-duhai dene walo ko ya vyapari sanghon ko? Devendar ji ne apne lekh mein yeh bilkul spasth kar diya hai ki hamare desh ka smajavad kiske liye hai. niryat ka vikalp acha jab hai jab utpadakon ko bhi vishwa ke achhe dam ka labh mil sake. Niryatk ab kisano ko yeh dalil denge ki MEP badh gaya hai jo sarkar ke rajaswa me ja raha hai aur woh apani asamarththata batayenge.
Isi sandarbh mein main ek aur vichitra mudda rakhna chahunga. 2009 se ab tak khadya mahangai dar awanm khadya processing sector ke vridhhi dar me samanta koi asmanjas nahi hai. Iske sath sath 2007 me simant awanm chote kisan to duhai dete huwe warehousing receipt (WR) ko kanooni manyata pradan kardi gai. Parantu khadya mantralaya iske bare be thos ankade nahi de pa rahi. Karan ddhoondna koi rocket science nahi hai. Dvendar ji ne inko spashta kar diya hai.
Ek tisra pahloo bhi is khadya mahangai ke liye hai. Aur woh hai antarrashtriya dabab. Is dabab mein gidad bhapki ka prayog bhi ho raha hai. Hal hi me WTO ke DSB ne China ke khanij niryat par lok apana phaisala diya ki china niryat par rok nahi laga sakta hai. Hamare naukar sah aur neta is bat ko bhali bhanti smajhte hai ki cheen ka sandarbh bharath ke sandhrbh se bilkul alag hai. Pranatu jab miyan bib rakji kya karega bechara kisan.
Han panchwe sal loktantra ke hath ek bar phir apana karthab dikha sakthe hain. Yeh meri kamna matra nahi nahi hai.
Prof. J. George Delhi University.

vipin said...

Mr. Sharma I m a bit confused in some articles i feel u r in favour of our farmers but on this issue i am not able to understand what r u trying to explain, Aaj desh me Agricultural products ki mahngaayi sab ko dikhayi de rahi hai, lekin gareeb kisaano ki aatm hatya kisi ko dikhayi nahi deti, MANREGA ki vajah se jo rural area me labour shortage ki vajah se jo kisaan ki lagat me ijaafa hua hai vo kisi ko nahi dikhta, Desh ka ANN DAATA kisan jo fasal 1000 rs me market me bejta hai vo hume city me 2000 rs me milti hai. Ye margin sirf Bicholiye kha jaate hain,Kisaan fhir gareeb ka gareeb rahta hai. Hum nokri pesha log har saal salary increment ki dimaand karte hain or 15-50 percent ka monthly increment hume mil jaata hai , lekin kisaan ko uski mehnat (Fasal) ka yearly 10 percent bhi increment nahi milta.Hum loan lekar makaan , car,AC lete hain or kisaan Makaan, Khet Khaliyaan girvi rakh kar humaare liye fasal ugaata hai.Hum apni sukh suvidhaon ke liye kharch karte hain or kisaan apni jaroorton ka gala ghont kar fasal pe paise lagata hai....That is the ground realty in this Krishi Pradhaan country