The government has raised the Minimum Assured Procurement Price (MAPP) for onions for the seventh time this year to ₹26.45 per kg, as tighter supplies and delayed arrivals push wholesale prices higher, with analysts expecting prices to remain firm in the near term.
The latest increase takes the procurement price to more than double the level at which government procurement began in mid-May. The MAPP has risen from around ₹12.70 per kg to ₹26.45 per kg as of August 18, an increase of about 108%.
The increase comes as onion prices in Nashik, the only procurement centre continue to rise. “Prices of the bulb in Nashik have more than doubled—from around ₹11.50 per kg in May to ₹24.14 per kg in August, a rise of about 110%,” Pushan Sharma, director at Crisil Intelligence told HT.
According to experts, prices are likely to continue climbing and peak towards September and October, when stored rabi onions are expected to run down and fresh kharif arrivals are likely to be delayed.
Why are prices rising?
{{/usCountry}}Why are prices rising?
{{/usCountry}}The onion winter crop, which starts arriving in March, supplies the market until end of September when the onion kharif or monsoon crop comes in. However, this year, rabi onion production, which accounts for around 60-65% of India’s annual onion supply, is expected to be 5-7% lower this year.
Moreover, this lower acreage was followed by yield concerns arising from unseasonal rainfall in Maharashtra during March, which affected the quality and availability of the crop.
To add to that, the supply pressure is being compounded by delays in the next crop as the kharif onion, that comes in by October, is likely to be delayed due to a delayed monsoon this year. “The Nashik onion which comes from October onwards is unlikely to come for another month,” said Vikas Singh, vice-president of the Horticulture Produce Exporters Association.
Meanwhile, the southern crop that normally bridges this gap is also weak. “Backup supplies used to come from Karnataka and Andhra Pradesh, particularly South Bellary, but with low and delayed rainfall, the crop is delayed and lower this year,” Singh said.
Experts see this leaving the market with a one to one-and-a-half-month supply gap, with the pressure becoming more visible from September to October. Early rains have also caused severe losses in stored onion stocks, as per Singh.
However, supplies are expected to improve in November with arrivals from Gujarat, Nashik and Rajasthan’s Alwar region, as per Singh.
How has procurement progressed?
Government procurement accelerated after a slow start. While the government was able to achieve only around 2% of the 200,000-tonne procurement target by end-June, its buys ramped up to around 55% or 110,000 tonnes by July end as it relaxed procurement specifications.
However, with relaxations in procurement specifications taken back and reverted to procuring Grade-A onions government procurement pace could moderate, Sharma said, particularly given concerns over the quality of available rabi stocks.
Prices likely to remain firm
“Onion prices are expected to remain firm in the near term,” Sharma said.
As per Singh, traders are also closely tracking government stocks which continue to be lower than the target which he said is prompting some hoarding. “Traders see the government as having low stocks, so hoarding has begun,” he said.
Pressures could ease towards the end of the year as the current price environment eventually encourages farmers to increase planting. “With prices high, I see higher sowing for late kharif and rabi, as farmers have got good prices this year,” Singh said.
Prices may even come down once the government enters the market with its limited supply. HT had previously reported that the government plans to sell its entire onion buffer stock through retail sales this year after procuring far less than the target. This will mark a departure from the past two years when it intervened in both wholesale and retail markets to contain prices.