With onion touching Rs 100 per kg, food security is a joke

Onion_on_WhiteVivek Kaul 

Rahul Gandhi, aspiring politician and vice-president of the Congress Party, recently said that his mother cried when she couldn’t cast her vote on the Food Security Bill. Of course, the tears of a mother are precious to any son. But what about the tears in the eyes of the aam aadmi as onion prices touch Rs 100 per kg, in some parts of the country?
As per the recently released wholesale price inflation numbers, the price of onion has risen by 323% in the last one year. Vegetable prices during the same period went up by 89.37%. Fruits were up at 13.54%. And all in all food prices were up by 18.4% in comparison to the same period last year.
So why have onion prices been rising at such a rapid rate? Research Analysts Neelkanth Mishra and Ravi Shankar have some sort of an answer in a report titled 
Agri 101: Fruits & vegetables—Cost inflation dated October 7, 2013A few states dominate the production of vegetables. “In particular, Maharashtra dominates the onion trade (45% of national production by value), while West Bengal produces 38% of India’s potatoes, 49% of India’s cauliflower and 27% of India’s aubergines (brinjals),” write Mishra and Shankar.
And it is this concentration that creates problems. As the Credit Suisse analysts point out “This concentration creates problems in generating a nationwide supply response in case a particular geography sees bad weather or any other disruption (e.g., onions in Maharashtra). This also drives significant variation in prices across the country.” Rains had damaged the 
rabi crop of onions, which is produced between March and May. The kharif crop of onions has also been damaged by unseasonal rains. This crop starts coming into the market by the end of September.
But has this led to a shortage of onions in the country? R P Gupta, director of National Horticulture Research & Development Foundation 
told the Week magazine recently that “I have been saying since July that there is no shortage of onion in the country..Official figures show that 27.5 lakh metric tonnes of onion were stored during February and May. Monthly consumption of the country is only 7-8 lakh tonnes per month…. So, where was was the problem of shortage?”
The only possible explanation is hoarding by traders in the key onion producing state of Maharashtra. As is well known the Agricultural Produce Marketing Committee (APMC), which runs the onion trade in Maharashtra, is largely said to be controlled by Sharad Pawar’s Nationalist Congress Party.
As the Week article points out in the context of the Lasalgaon mandi in Nashik, Asia’s largest wholesale market for onions “Powerful traders…manipulate the market. They book stocks from farmers at low prices, much in advance. Thousands of tonnes of onions are hoarded to create a short-supply. And as the prices spiral up, the hoarded stocks are released. It was such an artificial scarcity that allegedly spiked onion prices to record highs. “Traders in Lasalgaon Agricultural Produce Market Committee alone earned more than Rs.150 crore in just four days (August 12-15) this year,” says Dr Giridhar Patil, a farmer-activist.” This explains to a large extent why onion prices have been high all through the year.
The supply chain for the onion to move from the farmer to the end consumer remains very weak. 
As a recent Wall Street Journal article pointed out “A cultivated crop by a farmer in a far-flung village goes through as many as four intermediaries before reaching the local vegetable market in a semi-urban or urban area. These middlemen, wholesalers, traders and commission agents, usually charge fees and analysts estimate that by the time the vegetables make it to the stands in a retail market, their price has increased by almost six times.” This explains to a large extent why at times there is no link between the wholesale price of onions and the final price at which you and me buy it at. s
The Times of India reports that on October 22, 2013, the average wholesale price of the new onion crop at Lasalgaon was Rs 3,900 a quintal. This was 37% cheaper than in the summer. Despite this, prices at the retail level have not dropped.
NCP boss Sharad Pawar, who also happens to be Union Minister of Agriculture, 
had said on September 17, 2013 that “There is a lot of talk about the rise in onion prices; however, when prices fall no one shows any concern for the farmers. When farmers are getting more money for their produce we should not complain.”
Now if onion is coming in at Lasalgoan mandi in Nashik at Rs 3900 per quintal or Rs 39 per kg, and selling in Delhi at Rs 100 per kg, how is the farmer gaining? As explained above, it is the middlemen who are making the bulk of the money.
In fact, a study commissioned by the Competition Commission of India(CCI) in 2012, came to a similar result. The study titled 
Competitive Assessment of Onion Markets in India found that “onion trade is unilaterally dictated by the traders and not farmers for the reasons: (i) Average farm size of onion growers is quite low. Unfavorable weather conditions and price risk for these small farmers resulted for a minimal role in price formation; (ii) Traders buy small lots from the market yards and pool the produce for sorting or grading at their packing houses and market different grades to different markets all over India. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of the farmers to make any dent in onion trading. Therefore, most of the trading is in private hands; (iii) Farmers generally take reference of the local markets‟ rates, while traders compare rates of all markets, including major distant and export market and then decide where to send their produce of a particular grades. This brings greater profits to them…(vi) Lack of capacity to conduct multiple roles (wholesaler and commission agent) prevents farmers and their organizations to compete with traders.”
Also, most farmers, unlike traders do not have storage facilities. So they end up selling onions as soon as they produce it. The Week report cited earlier points out “This year, however, almost 80 per cent of the rabi crop was bought by traders (in the Lasalgaon mandi) at Rs.800 to Rs.1,200 a quintal by February-March. So, only a maximum of 20 per cent of the total crop was left with farmers who had storage facility.”
In fact, these traders even collude to drive up prices. As the CCI study found out “Collusion was observed among traders in selected markets in Maharashtra and Karnataka, For instance, a visit to Ahmednagar APMC revealed that there was collusion amongst traders. While bidding on certain lots was taking place, traders started with about Rs 300 per quintal and kept bidding higher prices till one trader quoted Rs 400 per quintal and another bid at Rs 405 per quintal. The commission agent stopped the auction and produce was shared between two wholesalers. It should also be pointed out that in Vashi market about 60 per cent of farmers reported that sales were undertaken through secret bidding.” The APMC markets referred to above are controlled by the NCP.
So farmers are not the ones benefiting from an increase in onion price, even if Pawar wants us to believe that is the case. Also, even if one believes that the farmers in Maharashtra are benefiting what about farmers in other states of India? Aren’t they paying a significantly higher price for onions? The last that I checked Sharad Pawar was the agriculture minister of India and not Western Maharashtra.
The reaction of the government to this rise in onion prices has been very high handed. 
The telecom minister Kapil Sibal, when he was asked on September 17, if onion prices will rise further, had said “Why don’t you ask the traders this? The government is not the one selling onions,”.
This was the last thing one expected a senior minister in the UPA government, which has been very committed to the idea of food security, to say. Onion is an essential ingredient in almost all curry that Indians make, whether it is to cook vegetables or meat. And given that, it is an important part of food security.
Onion prices have rise at the rate of 323% per year. The vegetable prices have risen at the rate of 89% per year. The food security of the 
aam aadmi is in danger as the government sits around doing nothing as usual. Half of the expenditure of an average household in India is on food. In case of the poor it is 60% (NSSO 2011).
Rahul Gandhi 
in a recent speech in Madhya Pradesh had said “They don’t understand that one can’t talk of development when the stomach is empty.” He had also said that “we understand your hunger.” Does he?
Or does the government want to supply rice at Rs 3 per kg and wheat at Rs 2 per kg, to two thirds of the country, so that people can buy onions at Rs 100 per kg? The joke as usual is on us.

The article originally appeared on www.firstpost.com on October 23, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)

 

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

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