What determines onion prices?

Context

• The Centre on Friday reintroduced the stock limit on onions — a move aimed at controlling rising prices, which crossed Rs 80 per kg in many cities on Friday, including nearly Rs 100/kg in Mumbai.
• Barely a month ago, Parliament had amended the Essential Commodities Act, 1955 to exclude onions — besides potatoes, edible oils, oilseed and pulses — from the list of essential commodities, thus freeing them from stock limits.

Why have onion prices been rising?

• Massive losses to kharif onions caused by heavy rainfall in north Karnataka.
• This crop was meant to arrive after September and was expected to feed the markets until the arrival of the kharif crop from Maharashtra towards the end of October.
• There are three main onion crops — kharif (June-July sowing, post-October harvest), late kharif (September sowing, post-December harvest), and rabi (December-January sowing, post-March harvest).
• The rabi crop has the least moisture content, making it amenable to storage.
• Farmers, especially in Maharashtra, store it in on-field structures called kanda chawls to protect it from moisture and light. This crop feeds the markets till the next one arrives.
• The heavy rain in September not only destroyed the new crop in Karnataka but also took a toll on stored onions in states like Madhya Pradesh and Gujarat.
• Farmers in Maharashtra alone had marketable onions, having stored around 28 lakh tonnes at the start of summer.
• But even Maharashtra farmers, in fact, have suffered more than their usual storage losses — 50-60% as against 30-40% normally. Rain in the onion belt of Ahmednagar, Nashik and Pune had caused water seepage into the structures.
• Also, agriculture officers say, the shelf life of the onion is lower this year due to overuse of urea by farmers.
• The national acreage for rabi onions last season was 10 lakh hectares as against 7 lakh hectares of 2018-19. But the additional wastage has constrained supply.
• Of the 28 lakh tonnes stored in Maharashtra, around 10-11 lakh tonnes remain now.
• The yearly consumption of onions in India is slated to be 160 lakh tonnes with Maharashtra alone consuming around 4,000-6,000 tonnes per day.

How has the government reacted to this?

• The Centre applied the first brakes on rising prices on September 14, when it banned the export of onions.
• This was done when the amendment to Essential Commodities Act 1955 took away the power of the government to put stock limits on onions and a few other commodities.
• Stock limits have been a potent weapon for controlling prices.
• But even after the export ban, prices continued to rise due to a supply-demand mismatch.
• This was followed by the relaxation of import norms on Wednesday, to allow easy shipping in from Iran, Turkey and other onion-producing nations.
• And on Friday, the government reintroduced the stock limit. Wholesale traders are now allowed to stock up to 25 tonnes of onion, and retail traders up to 2 tonnes.

Will imports help bring prices down?

• The landed cost of onions from Iran at Mumbai port works out to around Rs 35 per kg.
• Taking into consideration transport, handling and other charges, the final retail cost for such onions come to around Rs 40-45 per kg.
• However, traders said the demand for onions from Iran comes from the hotel and hospitality industry rather than from the retail buyer.
• Such onions, they point out, lack pungency and are larger than Indian ones.
• In its statement, the Centre has expressed hope that the kharif crop will soon hit the markets which will help in cooling down the prices.
• However, reports of heavy crop losses have started coming in from Nashik due to exceptionally heavy rainfall in the last few days.
• Farmers say the rain has not only damaged the almost market-ready crop but also taken a toll on the nurseries where farmers were raising saplings for the late kharif and rabi crops.
• While the imports can see prices move downward in the short term, most say the real price correction can happen only when the new crop hits the market. That will be only post-November.

What are the prospects for the next crop?

• Farmers and agricultural officers have talked about a dire shortage of onion seeds, which can cast a shadow on the all-important rabi season.
• Normally, farmers generate their own seeds by allowing a portion of the crop to flower and then produce seeds.
• However, this season, they skipped this step and sold their entire crop in view of the good prices being offered.
• Non-availability of good seeds has caused concerns and the available seeds are being sold at a premium.