Here’s why the government has stepped in to cool soaring onion prices
Retail inflation in onions rose 11.7 per cent in July; early depletion of rabi stock believed to have pushed prices higher
- Aug 21, 2023,
- Updated Aug 23, 2023 3:48 PM IST
As onion prices soared, the Centre took a number of steps over the weekend to improve domestic supply and ensure that they don’t turn into the next tomatoes, becoming unaffordable for most kitchens.
Experts note that onion prices have been on the rise this year due to high temperatures and heavy rainfall. Pushan Sharma, Director of Research at CRISIL Market Intelligence and Analytics, said onion prices had been inching up over the last three weeks. As per data from the Ministry of Consumer Affairs, onion prices were over Rs 30 a kilo on August 19, which was 20 per cent higher last year.
“High rainfall in July in key producing regions of Maharashtra and Karnataka led to damage to the stored onion crop,” Sharma said. Traders had around 2.5 million tonnes of onion stored and it is estimated that around 10 per cent to 20 per cent of the stock got damaged.
This year also witnessed high temperature in February and unseasonal rainfall in March, when the rabi crop matures. “The change in weather conditions led to early maturity of the rabi crop. While the typical rabi onion has shelf life of six months, the weather changes have reduced the shelf life of this year’s rabi onion crop to five months,” he explained. The rabi season (winter crop) produces 70 per cent of India’s onion requirement.
While there is typically a lean period in onion towards the end of September, when rabi stocks deplete and the kharif crop is yet to come into the market (by early October), this year the lean season is expected to increase and the rabi stock is estimated to deplete by early September, leading to the current price increase.
Yuvika Singhal, Economist at QuantEco Research, said the government’s administrative steps on onions related to export duty and subsidised sales are pre-emptive in nature to ensure that prices do not escalate to add on to woes already caused by tomatoes. “Onion prices have risen 30-35 per cent over the last two-and-a-half months, though much more muted when compared to the sharp spike seen in tomato prices. Vegetable prices typically display seasonality and it is expected that prices will come down once the new crop is available in market post-harvest. That said, vegetable prices have topped historical seasonal trends this year,” she said.
The impact of climate change on food production is apparent and it is turning to be an important factor that impinges on inflation.
Retail inflation in onions accelerated to 11.7 per cent in July from 1.7 per cent in June. Along with tomatoes, onions contributed to the sharp surge in vegetable inflation last month, which shot up to 37.3% in July from -0.7% in June.
The Centre has imposed a 40% export duty on onions to discourage their sale abroad and improve domestic availability. The levy will be in force till December 31. India contributes over 12% of global onion trade by value.
The government also decided to increase the buffer stock limit to 5 lakh tone from 3 lakh tone in order to improve domestic availability of the kitchen staple. Further, onions from the buffer are being sold at a subsidised rate of Rs 25 per kg through retail outlets and mobile vans of National Cooperative Consumer Federation.
Singhal also highlighted that the somewhat more worrying is the inflation in cereals and pulses which could prove to be stickier. “While the government has been nimble footed, more supply side measures and effective implementation of those already announced may be needed to curb prices especially in wheat and rise,” she said.
As onion prices soared, the Centre took a number of steps over the weekend to improve domestic supply and ensure that they don’t turn into the next tomatoes, becoming unaffordable for most kitchens.
Experts note that onion prices have been on the rise this year due to high temperatures and heavy rainfall. Pushan Sharma, Director of Research at CRISIL Market Intelligence and Analytics, said onion prices had been inching up over the last three weeks. As per data from the Ministry of Consumer Affairs, onion prices were over Rs 30 a kilo on August 19, which was 20 per cent higher last year.
“High rainfall in July in key producing regions of Maharashtra and Karnataka led to damage to the stored onion crop,” Sharma said. Traders had around 2.5 million tonnes of onion stored and it is estimated that around 10 per cent to 20 per cent of the stock got damaged.
This year also witnessed high temperature in February and unseasonal rainfall in March, when the rabi crop matures. “The change in weather conditions led to early maturity of the rabi crop. While the typical rabi onion has shelf life of six months, the weather changes have reduced the shelf life of this year’s rabi onion crop to five months,” he explained. The rabi season (winter crop) produces 70 per cent of India’s onion requirement.
While there is typically a lean period in onion towards the end of September, when rabi stocks deplete and the kharif crop is yet to come into the market (by early October), this year the lean season is expected to increase and the rabi stock is estimated to deplete by early September, leading to the current price increase.
Yuvika Singhal, Economist at QuantEco Research, said the government’s administrative steps on onions related to export duty and subsidised sales are pre-emptive in nature to ensure that prices do not escalate to add on to woes already caused by tomatoes. “Onion prices have risen 30-35 per cent over the last two-and-a-half months, though much more muted when compared to the sharp spike seen in tomato prices. Vegetable prices typically display seasonality and it is expected that prices will come down once the new crop is available in market post-harvest. That said, vegetable prices have topped historical seasonal trends this year,” she said.
The impact of climate change on food production is apparent and it is turning to be an important factor that impinges on inflation.
Retail inflation in onions accelerated to 11.7 per cent in July from 1.7 per cent in June. Along with tomatoes, onions contributed to the sharp surge in vegetable inflation last month, which shot up to 37.3% in July from -0.7% in June.
The Centre has imposed a 40% export duty on onions to discourage their sale abroad and improve domestic availability. The levy will be in force till December 31. India contributes over 12% of global onion trade by value.
The government also decided to increase the buffer stock limit to 5 lakh tone from 3 lakh tone in order to improve domestic availability of the kitchen staple. Further, onions from the buffer are being sold at a subsidised rate of Rs 25 per kg through retail outlets and mobile vans of National Cooperative Consumer Federation.
Singhal also highlighted that the somewhat more worrying is the inflation in cereals and pulses which could prove to be stickier. “While the government has been nimble footed, more supply side measures and effective implementation of those already announced may be needed to curb prices especially in wheat and rise,” she said.