Why Onions Continue To Bring Tears In Your Eyes
By Devinder Sharma
22 September, 2011
Ground Reality
Within 11 days of imposing a ban on the export of onions,the powerful traders lobby forced the government to lift the ban. Succumbing to pressure from the onion traders, who normally cry hoarse in the name of farmers, the speed at which the onion trade made the government to bendbackwards is a pointer to the monumental failure to curb food inflation.
For over 4 years now, ever since food inflation has hit theroof, I haven’t seen so much of political activity as I have observed in thelast few days. Triggered by protest by Nasikonion traders, who had refused to partake in daily auction to demonstrate theiranger against the sudden imposition of exports ban, the NCP chief MadhukarPichad had first written to Prime Minister Manmohan Singh and the CommerceMinister Anand Sharma. Maharashtra Chief Minister Prithviraj Chavan had deputedhis Agriculture Minister Radhakrishna Vikhe-patil and some of his colleagues tomeet Finance Minister Pranab Mukherjee and other concerned ministers.
According to news reports, Prithviraj Chavan had himselflobbyed with Pranab Mukherjee and Anand Sharma seeking an immediate withdrawalof the ban on onion exports. Union Agriculture Minister Sharad Pawar too hadthrown his weight behind the agitating traders and had met Food Minister K VThomas to impress upon him the need to allow onion exports. He had forcefullyargued in favour of onion exports at the meeting of the empowered Group ofMinister (eGoM) on Tuesday. Knowing the strength Sharad Pawar wields in UPA II,it was expected that the government will give in.
After the much-awaited eGoM that met under the chairmanshipof Pranab Mukherjee on Tuesday, Food Minister K V Thomas announced the liftingof the ban subject to a minimum export price (MEP) of $475/tonne. While noquantitative restrictions were announced, the high MEP is expected to act as adamper on onion exports. Seeing the steady rise in open market onion prices fora month or so, the MEP had been steeply raised by $ 200/tonne within a span ofa month. In mid-August, the MEP stood at $ 275/tonne.
The high MEP certainly has not dampened the spirit of theexporters who have merrily resumed the daily auction operations in Nasik mandis.
There are reasons to understand the panic the Food Ministrymust be under when it decided to impose a ban on onion exports. Knowing wellthe stupendous rise in the prices of onions in the retail market just a fewmonths back, when for no justifiable reasons the consumer prices had swung to ahigh of Rs 80/kg, the Food Ministry was certainly being over-cautious. Heavyrains in the last week of August had further slowed down transportation ofbulbs from Maharashtra, thereby adding to thewoes of the consumers In mid-August, Food Ministry first tried to restrict exportsby raising the MEP by $45 to bring it $275/tonne, but it failed to control the retailprices. And when open market prices increased to Rs 25/kg, the panic button waspressed.
For the past three years, September has been the worryingmonth. Last year, heavy exports undertaken in September were blamed for the subsequentshortfall in onion availability in December when a sudden jerk in prices hadbrought tears in the eyes of the consumers. When onion prices had jumped fromRs 35/kg to Rs 60/kg in retail last year, Commerce Minister Anand Sharma hadsaid that the price rise was because of hoarding as the country had enoughstocks. This year too, when onion prices had begun to show its head, AnandSharma is on record saying that the price rise is because of hoarding. Iremember when the government went into a tizzy last year, the Nafed chief hadexpressed surprise at the price rise. He told the media that there was roughly20 per cent more supply, and despite the rain damage to the standing crop inSeptember, the price rise defies any logic.
The legitimate question that follows is then why is thegovernment unable to crackdown on hoarders. More so at a time when onionproduction was estimated to be at record 145.62 lakh tonnes last year. Thisyear, the crop is still better and estimates point to an overall production of 151.36lakh tonnes.
Now, let us look at how politics is defining the rise inonion prices. Before even the prices had stabilised to Rs 50-60 per kg lastyear, Anand Sharma had met some of his fellow cabinet colleagues and impressedupon them the need to support the opening up of multi-brand retail. FinanceMinister Pranab Mukherjee, Home Minister P Chidambaram and Defence Minister A KAnthony had taken part in these discussions. Why the urgency? Anand Sharma hadreplied: “Policy formation is a dynamic process, and we are very progressiveand forward-looking.”
In fact, he also met the media the same day (Dec 23) to informthem about the dynamics of multi-brand retail. According to a news report:“While Mr Sharma rejected the argument that there was a link between thesoaring onion prices and the opening up of multi-brand retail to foreign directinvestment, the demand for liberalising the sector has been intensifying,especially in the wake of wide gap between the wholesale prices and retailprices.” It was therefore quite apparent that the onion price hike in Dec2010-jan 2011 was a manipulation to justify the approval for FDI in multi-brandretail.
Indiais under pressure from G-20 leadership to remove all barriers in opening up tomulti-brad retail. British Prime Minister David Cameron, US President BarackObama and the French President Nicolas Sarkozy had during their visits to NewDelhi had reportedly impressed upon Prime Minister Manmohan Singh on theurgency to open up for multi-brand retail. No wonder, the government has beentrying its best to project the need for big retail. With the politicalenvironment is not still conducive, there is no reason to disbelieve that thereis a deliberate effort to establish that multi-brand retail remains the onlyoption to bring down the retail prices.
September-October is generally a lean period for onions. Itsarrival in the mandis slackens duringthese months, and to meet the market demand traders maintain enough stocks fromApril onwards. With the arrival of the new crop in the second half of October,prices generally ease. Knowing the seasonality of the production cycle, theFood Ministry should have waited for a little more time before the suddenknee-jerk action of banning exports. Such adhoc decisions when it comes to commodity exports results in a loss ofconfidence among importers as a result of which the trade suffers. More oftenthan not, exports only help traders whereas onion farmers continue to be paid afraction.
This brings me back to the original question why thegovernment has been unable to control food inflation. Well, looking at the waythe onion traders have forced the government to retract its ban order, the factremains that I haven’t seen so much of political activity at any time on theissue of price rise. The reason is obvious. No political party wants to rufflethe traders with any stringent action. Traders hold the key to the politicalpurse, and a crackdown against hoarding and speculation would mean chopping offthe financial cord. We must therefore learn to live with food inflation.
Devinder Sharma is a food and agriculture policy analyst. His writings focus on the links between biotechnology, intellectual property rights, food trade and poverty. His blog is Ground Reality
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