India today is the second-largest producer of onions in the world. Be it for domestic use or international exports, onions are always in demand. It is also one of the most volatile crops as the price of onions can fluctuate quickly, thereby affecting household budgets across the nation. Price fluctuations are usually a result of more demand and less supply. This shows that despite onions being cultivated three times a year in ten onion-producing states in India, there is still room for improvement.
At times of low supply, the Indian government ensures that the prices don’t fluctuate by taking measures like shutting down exports and releasing buffer stocks into the market. We have explored the Indian onion export market in our previous article and all aspects show that it is not to be taken lightly. When onion supplies are low, the government always ensures that the domestic demand for onions is met on a priority basis before it is exported. Sometimes bans are imposed on exports altogether and imports are initiated until the prices stabilize. Though this is good for the masses, it isn’t good for Indian onion exporters or for the importing countries. These sudden export restrictions have not gone down well with other countries, especially with countries like Bangladesh which consumes 30-35% of the total Indian onion exports. Therefore there is pressure on the government to find a solution quickly.
Understanding the reasons behind onion price fluctuations
Price fluctuation is majorly caused when there is a disparity in demand and supply. This disparity could be caused by various reasons like incorrect usage of farm inputs, bad weather, inadequate storage facilities, costly transportation, etc. In 2021, all these factors affected the onion supply of India.
Onion is a kharif crop and is mostly grown in Maharashtra, followed by Karnataka. In 2021, due to unexpected heavy rainfall in Karnataka and Maharashtra, there was massive crop loss. This crop was meant to be bought to the market after September 2021. If things went according to plan, this harvest would have helped in fulfilling market requirements. The next lot of kharif crop from Maharashtra was supposed to come in towards the end of October.
Heavy rains in September 2021 not only damaged crops in Karnataka but also impacted stored onions in Madhya Pradesh and Gujarat. Rain in the onion belt of Ahmednagar, Nashik, and Pune in Maharashtra caused water seepage into the storage structures. Farmers of Maharashtra suffered storage loss of up to 50-60%, which is more than their usual storage loss of 30-40%.
This unexpected rainfall and ensuing damage to stored onions have spiked the onion prices in mandis. Agriculture officers also said that the shelf life of the onion was lower in 2021 due to the overuse of urea. Growing petroleum prices also increased transportation costs, and this too contributed to the price fluctuation.
The government realized that there was a need to increase onion production. This would ensure the availability of onions to meet the high demand. This would also help keep price fluctuations in check and help create a buffer stock in case the traditional onion growing states were hit by any natural calamities in the future.
Steps taken by the government to increase onion production:
India has three main onion growing seasons – kharif, late kharif and rabi. You can read more about it in our previous post. The rabi crop has the least moisture content of the three since it is harvested during the summer months. This makes it easy for farmers to store. This crop is used to meet the requirement of the mandis till the next crop is harvested. As a general rule, India produces more onions than it consumes. However, our country has the potential to increase production, and this is required to feed the growing population as well as the growing demand for onions abroad. Here are the steps taken by the government towards that end:
Increasing area under onion production
There are 10 Indian states that have been growing onions to meet the country’s consumption and export requirements. After April 2021, the government of India understood the importance of increasing production. Taking a step in this direction, in April 2021, the central government asked five non-traditional onion-growing states (Rajasthan, Haryana, Madhya Pradesh, Gujarat, and Uttar Pradesh) to increase the onion production area. They asked these states to increase the area sown under the crop by 9,900 hectares in the kharif season to keep price fluctuations in check.
During the crop year July 2020 to June 2021, onions were grown on almost 41,081 hectares in the non-traditional states. In 2021, the area has been increased to 51,000 hectares. Here are the stats for the five states.
Improving storage facilities
In India, onions are mostly stored in ventilated storage structures but moderating humidity is still a challenge. While big warehouses have such facilities, the farmers don’t have such facilities. To know more about the different storage facilities available in the country, read our post. The government procures rabi onions every year to maintain buffer stocks. However, it’s not possible to store perishable goods for a long period. Therefore, adequate and scientific storage facilities are the need of the hour. The ICAR Directorate of Onion and Garlic Research, Pune, has developed low-cost onion storage structures which have between 5-50 tonnes of storage capacity and have the potential to reduce storage losses by 20-50%. They have also created an IoT-powered solution. However, they need to be commercially implemented across the country. Agritech startups are now coming forward with solutions to track the storage conditions and alert farmers on the onset of rot, etc. Cold storages that can help maintain the controlled temperature and relative humidity conditions, along with low construction and running costs are also being proposed.
Consider an integrated model
For optimum onion productivity, the entire onion supply chain should be considered. This means looking into the preharvest as well as post-harvest processes and refining them. Even basic preharvest processes like providing the right education to farmers along with access to good farm inputs like the right varieties of onions that are storable can make a huge difference.
Focus on dehydrated onions
There is room to increase investments in dehydrated onions which have a long shelf life and have export potential. Onions can be dehydrated to prepare onion chips and onion powder, both of which are popular in European countries. Dehydrating fresh onions reduce wastage upto 3 to 4%. The Indian consumers have adopted milk powder, ginger-garlic paste, and frozen peas in the past and therefore with the right push, they will be open to dehydrated onions too.
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