India’s onion trade is highly opaque and concentrated in a few hands, helping traders at Asia’s biggest market in Maharashtra’s Lasalgaon operate like cartels and gouge prices on the slightest pretext, three recent probes suggest.
The price of onions has risen to a two-year high on the back of a slightly lower harvest of 18.9 million tonnes in 2014-15 compared to 19.4 million tonnes in the previous year. Domestic demand usually hovers around 17 million tonnes, while the rest is exported.
On Monday, food minister Ram Vilas Paswan said the crisis had been “worsened by hoarding”. He wasn’t wrong.
There are many reasons behind the wild swings in prices. During the June-September monsoon months, prices of vegetables usually remain elevated because of rain-related supply disruptions.
However, rampant malpractices help traders take advantage of such situations to raise prices. Recent studies show evidence of monopolistic practices in Lasalgaon, which sets prices around the country.
In December 2010, when prices peaked during the last major spike, a probe by the country’s statutory anti-monopoly body, the Competition Commission of India (CCI), revealed that one firm accounted for nearly a fifth of the total trading for that month.
A 2012 report by the National Council of Applied Economic Research also identified “collusion” as a major hurdle in fair trade, with a handful of traders pocketing a major share of trade in almost all big markets.
Nationwide, the onion trade is commission-based. Licences for the entire gamut of operations – from commission agent, wholesaler, transporter, storage chain owner, and even the railway agent – are often held by the same business families, the CCI found.
After its probe, the CCI in April 2014 issued a split verdict, citing insufficient evidence to penalise traders, but it ordered a study by the Institute for Social and Economic Change (ISEC) in Bangalore, which then found evidence of major malpractices.
The ISEC probe surveyed 11 markets, covering farmers, retailers and wholesale traders and other market players. “The average experience of commission agents and wholesalers in onion trade in selected markets found to be around 20 years... This creates oligopoly-like situation in the market, and perhaps restricting entry for new entrants. A clear case of entry barrier,” the probe’s conclusion said.
Aside from cartelisation, which helps sustain a price spiral when needed, there are long-term problems such as India’s low productivity and lack of cold storage.
India’s onion yields are around 14.2 tonnes a hectare against China’s 22 tonnes.
The government usually responds to a crisis with copybook measures: Curbing exports or importing onions to improve supplies. These eventually work, but not before spooking household food budgets.