Context:

Onions are, once again, in the news. Almost every alternate year, this roller-coaster of boom and bust in onion prices happens (see Graph). But 2017 is interesting as it saw record low prices in May-June when farmers sold onions at around Rs 2/kg in several mandis in Madhya Pradesh. 

Causes of high volatility:

• One of the prime reasons behind high volatility in onion prices stems from a lack of storage facilities that have not kept pace with rising production. Also, the traditional storage practices incur losses as high as 40 per cent. 
• About 60 per cent of onion production is in the rabi season, sown in December-January and harvested in April-May. This is the onion which is stored by farmers and traders and it meets export as well as domestic demand till the arrival of the kharif onion crop, which is sown in May-June and harvested in October-November. 
• The late kharif crop is sown in August-September and harvested in January-February. Kharif and late kharif crops produce about 20 per cent each of the annual production. Kharif onion is of rather poor quality and cannot be stored for very long. 
• The prices tend to rise in October-November when rabi onion stocks are almost depleted and kharif onion is yet to hit the market, or if the kharif crop is damaged, as is the case this year.

The Way out:

The first policy action has to be to promote modern cold storages and develop a system akin to that of the warehouse receipt system for farmers. 

• While a bulk of the storage has to be undertaken by the private sector, the state can do some stocking under a price stabilisation fund. They can hire the services of specialised private sector agencies to carry out such operations on the government’s behalf.

Second, use trade policy for price stabilisation.

• In case of a bumper crop, promote exports and in case of a deficit crop, encourage imports. This has to be done well in advance — as soon as one comes to know the advance estimates of production.

Third, encourage the setting up of onion dehydrating units and promote demand for dehydrated onions amongst large consumers (restaurants, fast food chains, army, hospitals, etc).

• Dehydrated onions are being exported to Japan, Europe, Russia, US and some African countries. The Ministry of Food Processing and state governments can encourage entrepreneurs to avail grants for setting up onion dehydration and processing units.

Conclusion:

Instead of raiding traders or banning exports et al, the Centre and the states would do better if they promote investment in scientific storage and processing facilities, and use trade policy more judiciously.

Source:Indian Express