From UPSC perspective, the following things are important :
Prelims level : Nothing much
Mains level : Onion price crisis : Ling term solutions
The failure to control spiking onion prices (it has crossed Rs 100/kg in several retail markets) has become a nightmare for the central government.
How future crises can be prevented
The current spike in onion prices could have been anticipated.
The trajectory of onion prices
- Retail prices touched Rs 50-60/kg in September-October.
- Trade controls – The government imposed minimum export price (MEP), put stocking limits on retailers and wholesalers and then banned onion exports.
- IT raids – When these measures failed to tame onion prices, even income tax raids were conducted on traders.
- Previous finance minister, the late Arun Jaitley had announced and allocated Rs 500 crore for “Operation Green” in the 2018 Union Budget to stabilise the prices of tomatoes, onions and potatoes (TOP).
- Acreage – The Horticulture Statistics Division had reported 7% lower kharif acreage compared to the previous year in major onion growing states of Maharashtra, Karnataka, Madhya Pradesh, Andhra Pradesh, Gujarat and Rajasthan.
- Rains – Due to heavy rains in September/October, almost 58% of the kharif onions in MP, 18% in Karnataka and 2% in AP were damaged. Continuous rains led to a delay in harvesting in Maharashtra.
- Late response – The government woke up to the problem late and directed MMTC to import 1 lakh million tonnes (mt) of onions. With relaxed fumigation norms, onions are being imported from Afghanistan, Turkey, and Egypt.
India – Onions
- India is already the largest exporter of onions in the world with average exports of 2 mmt a year.
- Instead of banning exports, it is better to keep imports open so that when domestic prices rise unduly, private trade can start importing rather than waiting for the government to take a delayed decision.
- India can remain a reliable exporter, which will help farmers get better prices on a sustainable basis. Abrupt export bans reflect the failure of government policy.
- India needs to build proper value chains as envisaged under “Operation Green”.
- Storage – storage facilities for rabi onions must be created on a massive scale, both at the farmers’ end as well as with traders.
- When prices were hovering around Rs 4-5/kg in April-May, the government could have purchased onions at ~ Rs10/kg and stored the stock in modern, private-sector godowns.
- Repeated stocking limits and raids discourage private investment in modern cold storages.
- Essential Commodities Act has to go. The Competition Commission of India (CCI) has to look into traders’ collusion.
- Dehydrated onions (flakes, powder, granules) can be promoted among urban households and bulk consumers (armed forces, hospitals, hotels and restaurants, etc).
- Buffer stock – As onions are sensitive commodities, the government should also keep a buffer stock of dehydrated onions, which have a much longer shelf life. 1 kg of dehydrated onion equals 10 kg of fresh onions. This is the right time to promote their use.
- With more than 100 units, Mahuva in Gujarat is already a hub for the dehydrated onion industry.
- Contract farming – Jain Irrigation emerged as the largest dehydrated onion company in India engaging small and marginal farmers on contract. The price to be paid to growers is assured by the company even before planting. If the market price after the harvest is higher than the assured price, then farmers get a price that is 60 paise/kg less than the market price.
- FPO – small and marginal farmers should be organised in Farmer-Producer Organisations and direct buying by organised retailers should be encouraged through contract farming, bypassing the mandi system.
- Market reforms along with overhauling the infrastructure of existing APMC mandis are required. APMC reforms are needed. Without that, the prospects of unified national markets, stabilising prices or ensuring a fair price to farmers and consumers are bleak.