The onion, infamous for its tear inducing abilities, added one more feather to its cap this year. It managed to burn quite a few pockets, with prices soaring upto Rs. 100 per kilogram in certain parts of India. The commodity holds an important place in the Indian household and has proven itself to be a politically sensitive commodity. Previously as well, it has proven itself to be quite the hot potato (ironically), with political parties crossing swords on the issue. In December 2010, the onion prices surged and caused a severe crisis due to shortfall in production (India is the second largest producer of onion in the world). In response to this, the government banned onion exports and began to import the produce from the neighboring nation of Pakistan. The reasons provided for the restricted supply in domestic markets were unseasonal rainfall and hoarding.
The competition watchdog in India, the Competition Commission of India (CCI), decided to take notice of the issue and ordered for a report. The report titled, “Competitive Assessment of Onion Markets in India” is comprehensive, and examined markets in Karnataka, Maharashtra (The states together produce 45% of India’s onions). The CCI as a watchdog endeavors to ensure that no agreement has an “appreciable adverse impact” on the consumer. The report summed up the economy’s predicament in the following lines –
“The high volatility in prices of agricultural commodities can have a disproportionate, typically nonlinear or asymmetric impact on the economy and may fail to endure exceptional shocks. This impact is prominent if governments and households are well-adapted to normal volatility but fail to anticipate or consider making worthwhile provisions against extreme shocks.”
Usually, an unprecedented surge in prices implies reduced supply of that commodity and highlights the non-substitutability of such a commodity. Other possibilities include creating artificial shortage, hoarding, monopolies, market inefficiencies and problems in distribution networks. Why the competition watchdog would order for a report on the competition assessment of the humble onion seems absurd but what must be remembered that prices of food commodities spillover and affect the prices of other commodities.
The onion is central to Indian cooking and Indian politics. The impact of its produce rendered its entry into the Essential Commodities List post the BJP government’s defeat in New Delhi in 1998. Subsequently, it was removed from the list in 2004 which ended the government’s control on its supply and production. Apparently, the Congress in 1980 won the general elections on account of its inclusion of rise in onion prices in its campaign issue. Considering the upcoming general elections, the victory of a political party lies in its ability to dedicate a section of its manifesto to the infamous vegetable.
One of the significant observations made by the Institute for Social and Economic Change in their report is that the price of the commodity is not determined so much by the producers as much as by the middlemen i.e. the traders. According to report, the market for onions is dominated by few and several players (essentially an oligopoly) which act as a trade barrier. Other observations include a lack of unity among onion farmers, collusion among traders, secret bidding and trader lobbies in APMC markets.
One of the aspects that the report also dealt with was the curbing of exports and the fixing of the minimum export price (MEP). The government has reduced the MEP for onions so as to encourage shipment of onions and so as to combat the volatility of the onion prices. The quandary has now been reversed. Onion prices fell drastically due to a bumper crop. In a bid to appease, the government is conducting a balancing act where both, domestic consumers and farmers benefit. However, this is temporary and might assuage the aam admi for now but reform in the onion market remains to be seen.
The middleman, the trader is seemingly the villain in this matter. Collusion and monopoly seem to be factor in the marking up of prices of onions. Other factors include the lack of representation of farmers in APMCs and other trading associations.
The onion seems to add flavor to both – food and political agendas. The hope is that, the exploitation of the issue for political means might actually lead to a certain degree of reform, necessary for both the producers and the end users of the unassuming onion.