Onion prices: What brings tears to your eyes.

Onions being sold in a typical Indian market

Quoting a study by the National Bank for Agriculture and Rural Development (NABARD), the Hindustan Times has reported that the stupendous price hike in onions was because the trade had manipulated the prices. In a report titled: Farmer sells onions at Rs 8, you buy at Rs 70 (HT, Aug 22, 2013. bit.ly/18LnbB7 ) it states: "You are right to feel ripped off, but spare a thought for the farmer, too. A NABARD report on onion reduction and marketing seen by HT shows that the farmer makes a profit of just Rs 3.60 for every kg he sells. In other words, a farmer would need to sell nearly 20 kg of onion if he, hypothetically, wanted to buy a kg of his own produce in plusher arts of Delhi."

In other words, the middlemen, and that includes the wholesale agents as well as the retailers, have together romped home with a huge profit. According to the NABARD study, "in an ideal situation -- with no hoarding or unfair practices, and wastage at the 'normal' 25% of the 150 million tonne crop -- onions should be available at Rs 14 per kg."

This is not the first time that the trade has been exploitative. Even at the height of the onion crisis in December 2010, when prices had touched Rs 80/kg, I had said there was no shortfall in production, and the unprecedented price hike was on account of hoarding and manipulation of the prices. Of course at that time, the Govt had sided with the hoarders simply because it wanted to justify the need to push in FDI in retail. (See my blog post: Now it can be told. Onion prices were stage managed. Dec 2010, http://devinder-sharma.blogspot.in/2010/12/now-it-can-be-told-onion-crisis-was.html).

Time and again, rising food inflation has been the topic of media discussions. Some magazine/newspapers have trailed the entire supply chain to explain to readers how the prices are jacked up, and at what stage. The general agreement is that it is the middlemen who exploits both the producers and consumers. So if the middleman's role is minimised or done away with, both the farmer as well as the consumers stands to benefit. The solution that is being suggested therefore is to bring in organised retail which will buy directly from the farmers, and therefore make it available relatively cheaper to consumers.

During the present onion crisis, the organised retail chains -- Reliance Fresh, Spencer's, Easy Day, Big Bazaar and the likes -- were charging Rs 60/kg when the open market price was also Rs 60/kg. A day or two later, it brought down the price to Rs 59/kg and eventually settled at Rs 50-55/Kg when wholesale prices were softening after the Govt announced imports. I had made it a point to visit Reliance Fresh store in Mohali (where I stay) just to monitor the prices of onions. Two things I observed. First, there was hardly any price difference. Secondly, the price that is fixed for onions is for A-grade quality, but what sells for most part of the day is very inferior quality produce. In other words, what Reliance Fresh is doing is that it does provide A-grade quality, immediately when the stocks come in for the day at a little less price that is in the open market, but then pushes bulk of its inferior quality produce at the same price throughout the day.