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Govt plans to build onion buffer as prices fluctuate

May 12, 2024 06:28 AM IST

The Union government has started procuring onions from farmers at market rates to build an emergency buffer of 500,000 tonne for 2024-25 to boost supplies if prices spike

The Union government has started procuring onions from farmers at market rates to build an emergency buffer of 500,000 tonne for 2024-25 to boost supplies if prices spike, an official of the consumer affairs ministry said.

The developments comes after India lifts up the five-month-long ban on export of onions. (HT Archive)
The developments comes after India lifts up the five-month-long ban on export of onions. (HT Archive)

A buffer will allow the government to intervene in the markets if prices spiral, especially after the government lifted its five-month-long ban on export of onions last week. Simultaneously, the country imposed a floor price of $550 per tonne plus 40% tariff on outbound onion shipments. The minimum export price discourages too much exports at cheap rates.

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The government does not expect onion rates to rise because of free exports, consumer affairs secretary Nidhi Khare said, citing normal availability, stable prices and robust output from the winter crop, estimated to be 19.1 million tonne.

Onion is a volatile item whose supplies tend to run low during an annual summer lean season. Since the bulb is a kitchen staple, consumers are quite sensitive to a rise in prices. The government had banned export of onion in December amid a price spiral due to lower supplies.

The government has directed two state-backed food agencies – the National Co-operative Consumers’ Federation of India and National Agricultural Cooperative Marketing Federation of India -- to initiate procurement of 5 lakh tonnes of onion for the buffer directly from farmers as Rabi harvest have started arriving in the markets. Procurement refers to the government’s purchases of farm produce for state reserves.

Winter onion is critical for country’s availability as it contributes 72-75% of India’s annual production. It is also crucial for ensuring year-round availability as it has a better shelf life compared to summer onion, and therefore can be stored for supplies till December.

For the procurement, NAFED and NCCF will preregister onion farmers to ensure payments are transferred to their bank accounts through direct benefit transfer, according to the government’s directive.

The department of consumer affairs had, through NAFED and NCCF, purchased about 600,000 tonne of onion during 2023-24 for the government’s reserves. These agencies then intervened in retail markets, selling the vegetable at a subsidized price of 25 when market rates had more than doubled due to a supply crunch in 2023. The buffer now needs to be replenished.

A global supply crunch and a dry spell induced by the El Niño weather pattern had prompted the government to take up policy measures to regulate onion exports during the year ended March. These included a 40% duty on onion shipments imposed on August 19, 2023, imposition of minimum export price of $800 per tonne with effect from October 29, 2023, and finally an export ban with effect from December 8, 2023, to ease local prices.

Market watchers have pointed to a familiar pattern in spikes in onion prices. Retail rates soar every alternate year or so due to poor harvests. It’s not uncommon for prices to crash either.

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  • ABOUT THE AUTHOR
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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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