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India The Real Story Of The Onion

Jan 6, 2005
Metro-Vancouver, B.C., Canada
The real story of the onion

22 September 2011

Devinder Sharma on how onion prices are ransom for opening up multibrand retail


Illustration: Mayanglambam Dinesh

WITHIN 11 days of imposing a ban on the export of onions, the powerful traders lobby forced the government to lift the ban. Succumbing to pressure from the onion traders, who normally cry ho{censored} in the name of farmers, the speed at which the onion trade made the government to bend backwards is a pointer to the monumental failure to curb food inflation. For over four years now, ever since food inflation has hit the roof, there hasn’t been so much of political activity as in the past few days. Triggered by protests by Nasik onion traders, who had refused to partake in daily auction to demonstrate their anger against the sudden imposition of exports ban, NCP leader Madhukar Pichad first wrote to prime minister Manmohan Singh and commerce minister Anand Sharma. Maharashtra chief minister Prithviraj Chavan deputed his agriculture minister Radhakrishna Vikhe-Patil and other colleagues to meet finance minister Pranab Mukherjee and other ministers concerned.

According to news reports, Chavan lobbied with Mukherjee and Sharma seeking an immediate withdrawal of the ban on onion exports. Union agriculture minister Sharad Pawar too threw his weight behind the agitating traders and met food minister KV Thomas to impress upon him the need to allow onion exports. He forcefully argued in favour of onion exports at the meeting of the empowered Group of Ministers (eGoM) on Tuesday. Knowing the strength Pawar wields in UPA 2, it was expected that the government would give in.

Soon, Thomas announced the lifting of the ban subject to a minimum export price (MEP) of $475 a tonne. While no quantitative restrictions were announced, the high mep is expected to act as a damper on onion exports. Seeing the steady rise in open market onion prices for a month or so, the mep had been steeply raised by $200 a tonne within a month. In mid-August, the mep stood at $275. The high mep has not dampened the spirit of the exporters who have merrily resumed the daily auction operations in Nasik.

There are reasons for the panic. Knowing well the stupendous rise in the prices of onions in the retail market just a few months ago, when for no justifiable reasons the consumer prices had swung to a high of Rs 80 a kilo, the food ministry was being overcautious. Heavy rains in the last week of August had further slowed down transportation of bulbs from Maharashtra, thereby adding to the woes of the consumers. In mid-August, the food ministry first tried to restrict exports by raising the mep by $45 to bring it to $275, but it failed to control the retail prices. And when open market prices increased to Rs 25 a kilo, the panic button was pressed.

For the past three years, September has been a month of worry. Last year, heavy exports in September were blamed for the subsequent shortfall in onion availability in December when a sudden jerk in prices had brought tears to the eyes of the consumers. When onion prices had jumped from Rs 35 to Rs 60 a kilo in retail last year, Sharma had said the rise was because of hoarding as the country had enough stocks. This year too, when onion prices had begun to show, Sharma said the rise is because of hoarding. Last year, the NAFED chief had expressed surprise at the price rise. He said there was roughly 20 per cent more supply, and despite the rain damage to the standing crop in September, the price rise defies logic.

The legitimate question that follows is why the government was unable to crackdown on hoarders. More so at a time when onion production was estimated to be at record 145.62 lakh tonne last year. This year, the crop is still better and estimates point to an overall production of 151.36 lakh tonne.

Now, let us look at how politics is defining the rise in onion prices. Before the prices had even stabilised at Rs 50-Rs 60 a kilo last year, Sharma had met some of his cabinet colleagues and impressed upon them the need to support opening up of multibrand retail. Mukherjee, home minister P Chidambaram and defence minister AK Antony had taken part in these discussions. Why the urgency? Sharma had replied: ‘Policy formation is a dynamic process, and we are progressive and forward-looking.’

HE ALSO met the media the same day (December 23) to inform them about the dynamics of multibrand retail. According to a news report: ‘While Sharma rejected the argument that there was a link between the soaring onion prices and the opening up of multibrand retail to FDI, the demand for liberalising the sector has been intensifying, especially in the wake of wide gap between the wholesale prices and retail prices.’ It was therefore quite apparent that the onion price hike in Dec 2010-Jan 2011 was a manipulation to justify the approval for FDI in multibrand retail.

India is under pressure from the G20 leadership to remove all barriers in opening up to multibrand retail. British prime minister David Cameron, US president Barack Obama and French president Nicolas Sarkozy had during their visits to New Delhi reportedly impressed upon Manmohan Singh the urgency to open up multibrand retail. No wonder, the government has been trying its best to project the need for big retail. With the political environment is not still conducive, there is no reason to disbelieve that there is a deliberate effort to establish that multibrand retail remains the only option to bring down the retail prices.

September-October is generally a lean period for onions. Its arrival in the mandis slackens during these months, and to meet the market demand traders maintain enough stocks from April. With the arrival of the new crop in the second half of October, prices generally ease. Knowing the seasonality of the production cycle, the food ministry should have waited for a little more time before the sudden kneejerk action of banning exports. Such ad hoc decisions when it comes to commodity exports result in a loss of confidence among importers as a result of which the trade suffers. More often than not, exports only help traders whereas onion farmers continue to be paid a fraction. This brings us back to the original question why the government has been unable to control food inflation. Well, looking at the way the onion traders have forced the government to retract its ban order, the reason is obvious. No political party wants to ruffle the traders with stringent action. Traders hold the key to the political purse, and a crackdown against hoarding and speculation would mean chopping off the financial cord. We must therefore learn to live with food inflation.

Devinder Sharma is a food policy analyst and environmental campaigner.

source: http://www.tehelka.com/story_main50.asp?filename=Ws220911real.asp



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