The price of onions not only has the ability to upset family budgets, it can also impact the electoral fortunes of incumbent governments.
In 1989, a dramatic rise in onion prices led to the defeat of the BJP-led government in Delhi. Yet, such wild swings in onion prices now seem to be fairly routine with there being at least one price spiral every year.
Usually, authorities respond with textbook measures: they curb exports or import onions to improve supplies. Such measures solve the problem for a short period but no long-term gains are made.
Onion prices are emblematic of India’s larger food-inflation battle. Vegetables are usually expensive during the rainy months between June and September.
A good monsoon or a drought can interrupt harvests. But what compounds weather-related problems is the corruption in India’s commission-based onion trade which is opaque and largely oligopolistic. Traders raise prices at the slightest hint of a drop in output.
There have been many reports on the malpractices in Asia’s largest onion market at Lasalgaon near Nashik, which sets price benchmarks across the country. In December 2010, when prices had last peaked, a probe by India’s statutory anti-monopoly body, the Competition Commission of India, revealed that one firm alone accounted for nearly one-fifth of the total trade.
The Institute for Social and Economic Change, which surveyed 11 markets, also found oligopolies at work. Traders tend to work around the rules, instead of directly violating them.
For instance, one study found that licences for intermediary activities including for the commission agent, the wholesaler, the transporter and even the railway agent are often held by the same business families who collude to control supplies.
India’s onion problem needs a multi-dimensional fix. India’s low onion yield — 14.2 tonne a hectare against China’s 22 — means there’s scope to get more out of per unit of cultivation. Ramping up cold storage may not help unless the ownership of the facilities is diverse.
Big multinational retailers may effectively break into the close-knit trade circles. It’s time the government took steps to bring what is lacking in India’s onion trade — transparency.