Aug 26, 2015

The Onion Game

The recurring onion price rise after every two or three years follows a set pattern. A set of similar measures – raising the minimum export price, announcing imports, and warning the hoarders -- are announced every time to bring down the prices. And the game goes on.

In the past few weeks, onion prices had hit the roof. From Rs 15-20 per kg, prices had gone up to Rs 70-80 per kg in various parts of the country. While the high prices cut a hole in your pocket, the arguments defending the price rise were the same. We are told by the trade that unseasonal weather conditions -- rains in May and June, followed by drought in Maharashtra, Karnataka and Andhra Pradesh – had reduced production and also hit the supplies. Blaming the freak weather in the kharif season has been a set excuse that has been thrown around time and again by unscrupulous traders. This had happened in the past too.  

But what is not being told is that there is no shortfall in onion production this year. Against last year’s harvest of 19.4 million tonnes, onion production this year is 18.9 million tonnes, a drop of just 0.5 million tonnes. With a drop in production by less than one per cent how can the retail prices zoom by 400 per cent or more remains unexplained. There is no plausible justification therefore for the rise in onion prices that we are witnessing except that a well-oiled system of organized hoarding, speculating and black-marketing is ripping us off.

Two years back, in 2013, onion prices had gone on a high. Prices had gone up to Rs 100/kg and the high prices had prevailed for a longer period -- July to September. Again there was no justification for the stupendous price rise. Production had fallen short of the target by just 4 per cent whereas retail prices had jumped by 600 per cent. This is simply not possible unless large scale hoarding had taken place. Such was the extent of price manipulation that an investigation by a newspaper had shown how the traders made a neat Rs 150-crore in just four days when prices peaked at Rs 4,500 per quintal on Aug 13, 2013.

Again, the solutions to address the price rise were no different than what have been spelled out this year. Hiking the minimum export price, placing orders for imports and warning the hoarders of stern action. The government had also promised to streamline the supply chain. You have heard it a number of times.

Let’s now go back to 2010 when onion prices had shot up to Rs 80 per kg rather unexpectedly. Production had exceeded the demand by 20 per cent, and yet a phenomenal price rise was observed. This happened in December, and had the backing of the government which wanted the onion story to justify the approval for FDI in retail. It was said that the prices are zooming because the middlemen were exploiting both the producers as well as the consumers. The entry of big retail like Wal-Mart would remove the middlemen bringing relief to everyone. But what the government did not tell was that Wal-Mart was also a middleman, which would only remove the small players from the game.

If there is no shortfall in production and still the prices go through the roof then there is something more than what meets the eye. Let’s be clear that the onion price raise in 2013 (and also 2015) happened at a time when elections were due. I am not trying to link the onion prices with ensuing elections but it certainly is baffling to find onion prices going up unexpectedly for no reason. Perhaps it is a good research topic for political economy students.

What I am sure is that onion price spike will continue to be a recurring phenomenon in the years to come. Just before or after a major election, you will find your favourite veggie -- onions -- turning into a tear-jerker. Onion is the only veggie which has a long self-life. It is therefore easy to play the onion game. Just be ready to wipe your tears again whenever the same game is played out in the years to come. #

Source: The Onion game: Playing to the rules. Aug 25, 2015

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