Price manipulation via onion hoarding

It is now literally time to know your onions as the skyrocketing prices of the vegetable is clearly the outcome of hoarding in major markets of states like Madhya Pradesh and Maharashtra, where vested interests are manipulating prices through artificial scarcity

Even though Rythu Bazaars are selling onions for ` 35, people in most places in city are still buying them for nearly Rs 70 per kg

Hoarding of onions in major markets with a view to manipulating their prices has impacted consumers in many parts of the country. Today almost every Indian consumer is quite particular and sensitive when it comes to the price of onions. In Hyderabad, thanks to some degree of market intervention, the prices of onions have come down to Rs 37 to 45 kg in retail stores and that too after the government started distributing onions at a subsidised price of Rs 35 through rythu bazaars and the recently operationalised mobile rythu markets.

The limited quantity sold at these controlled rates through rythu bazaars and mobile rythu markets pales into insignificance, if one considers the fact most of the people who do not have the time to join queues for low-priced onions will have to pay as much as Rs 70 to Rs 80 per kg.

Recently it was found that tonnes of onions are being held back by traders in two districts of Madhya Pradesh just for inflating prices even as the common man is paying through his nose for the bulb, investigation by a TV channel has revealed. Despite the hullabaloo over rising onion prices, murky goings-on are being reported from a belt between Indore and Bhopal, where substantial produce is reaped in April-May and from where the stock reaches households across India by July and August.

During investigations by a prominent TV channel, it was found that warehouses in Shajapur and Sehore districts are brimming with onions. Had these huge consignments legitimately found their way to the market, the prices would certainly have been much lower. The huge stocks hoarded have given room for price manipulation. This explains the exorbitant prices of onions due to artificial scarcity.

The government uncovered the plot hatched by some traders operating from major onion markets in Nashik, Maharashtra, as it sought to figure out why a relatively small drop in production has resulted in a significant dip in market arrivals.

"It appears that stored onions are being released slowly into the market which together with continuing demand is pushing up prices," said a note considered by a review chaired by cabinet secretary Ajit Seth recently. Confirming it, food and consumer affairs minister KV Thomas told media persons: "Delayed release of stocks and hoarding has been noticed. This can be a reason for higher retail prices. Concerned states have been asked to intervene and ensure steady supplies."

Thomas said the dip in production was around 7 lakh tones, while exports rose slightly. He hoped that raising the minimum export price and regulatory measures by state governments would help stabilize prices in a week. The math that puzzled officials was: Though onion production in 2012-13 declined only 5% and storage was less by just 2 lakh tonnes, market arrivals fell steeply by 20-40% in June-July 2013. The declining arrivals made even less sense as the National Horticulture Research and Development Foundation has reported onion stocks totaling a healthy 8-9 lakh tonnes -- sufficient to meet demand till the kharif crop reaches markets.

The obvious price manipulation was traced to the doorstep of traders controlling release of onion stocks at Nashik's major markets, including Pimpalgaon and Lasalgaon, where the rates are threatening to breach the Rs 5,000 a quintal mark.

Having zeroed in on a major cause of onion price rise, the government is now wielding the import stick to bring down prices; instead of allowing the situation to worsen, knowing fairly well that it could prove politically calamitous ahead of elections to major states like Madhya Pradesh, Chhattisgarh, Delhi and Rajasthan.

Reflecting a rising concern in government as it fights high food inflation and economic woes like a yo-yoing stock market and a sliding rupee, the Centre is pushing states to ensure quick release of stocks. The use of regulatory pieces of legislation like the Essential Commodities Act and other inspection mechanisms have been suggested, while the Centre encourages states hit by soaring onion prices to explore direct contractual procurement.

The August-September season is seen as a lean time when the extent of depletion of stocks depends on the previous rabi (winter) production, storage and export demand. The estimated storage in Maharashtra in 2013 (the state accounts for around 32% of production) is down by a mere 50,000 tonnes at 15 lakh tonnes. Storage is down by 1 lakh tonnes in Gujarat and it has not fluctuated much in other states.

Early arrival of the rabi crop saw an increase in exports in April and May, but thereafter the trend shows a declining curve, confirming reports of supply manipulation as the main reason for rising retail prices of onions. According to reports, full-fledged movement of onions to various parts of the country will begin in right earnest from mid-September, when farmers from Maharashtra and Karnataka bring their crops to the market.

At present, onions from Andhra Pradesh are being moved to mandis in Agra, Delhi, Mumbai and Indore, due to which the wholesale prices have fallen from Rs 4,700 a quintal last week to Rs 3,251 as of Monday in those areas. Retail prices have also fallen by Rs 5 and Rs 10 per kg in Agra and Delhi, due to movement of stocks from AP.

The vegetable is widely used in Indian food. It is tossed into almost every Indian dish. Any prolonged fluctuation in its price becomes the subject of discussion around dinner tables and consequently could negatively impact political campaigns. This vegetable in particular has contributed to the downfall of governments in the past.