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Govt imposes 40 per cent export duty on onions: Why are prices rising?

After a long slump, onion prices are again on the rise, causing concern for the central government. As a result, the Ministry of Finance imposed a 40 per cent export duty on onions on Saturday (August 19). This led traders to close onion auctions indefinitely in Nashik district, Maharashtra. 

Why are onion prices on the rise?

Prices of onions have seen a steep rise since the start of August. At Lasalgaon’s wholesale market in Niphad taluka of Nashik, the average price of the bulb has risen from Rs 1,370/quintal on August 1 to Rs 2,050/quintal on August 19. In contrast, back in March-May, onion growers faced financial distress, when their produce was sold between Rs 500/quintal and Rs 700/quintal.

The present price rise has two aspects to it: first is the shortage in stored produce; the second has to do with lower-than-expected acreage of the bulb itself. Unlike other vegetables such as okra or beans, onions are not grown around the year. 

Farmers take three crops of which the last one feeds the market for the longest duration. Rabi, the summer crop, is sown in December-January and harvested post-March. Kharif is sown in June-July and harvested post-September, while the late Kharif crop is sown in September-October and harvested in December-January. Of the three crops Rabi is most amenable to storage given its lower moisture content and is stored in on-field storage structures called kanda chawls. Farmers offload the stored onions in tranches to ensure better realisation.

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The fallout began last year when the country saw a dip in onion acreage. The Crop and Weather Watch Group noted that as against the 3.76 lakh hectares target for onion, the country had seen sowing over 3.29 lakh hectares. The situation worsened due to the damage to the Rabi crop in March–April, when most onion-growing states, including Maharashtra, saw unseasonal rain and hailstorm.

For instance, Nashik reported multiple days of hailstorms in March, just when farmers had started their harvest. Rough estimates say that this affected around 40 per cent of onion crops, of which around 20 per cent had to be ploughed back in due to quality concerns.

Also, farmers, who generally offload their Rabi onions only post-June, were forced to do so from May itself because of quality concerns of the stored produce. Therefore, the month of May saw increased arrivals which along with inferior quality saw a price crash.

The Maharashtra government had in March announced a special scheme to support onion growers with a subsidy of Rs 300/quintal. Most farmers said the scheme is yet to reach them. As a result, the supply-demand mismatch has resulted in the present price rise, which traders said was normal.

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What has onion exports to do with the present price rise?

The domestic price rise comes at a time when demand for Indian onion in the international market has been quite high. In fiscal 2022-23, India exported 25.25 lakh tonnes of onion as compared to 15.37 lakh tonnes in 2021-22 and 15.78 lakh tonnes in 2020-21. The majority of the demand is from Bangladesh and West Asia. Landed price of exported onion is around Rs 25-26/kg, which is economical for the trader. 

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With a 40 per cent export duty, the price parity of the trade will be destroyed. Moreover, many traders had already signed contracts for exports at a lower price and this duty would have to be incurred by them. Around 4,500 tonnes of onion is in transit for which the exporters would have to suffer the losses.

Increased export duty, the government feels would stem the bulb from leaving the country and would allow more availability in the local market and thus ensure smoother supply and lower prices.

Will this ensure lower prices?

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On the face of it, a price correction is possible but the larger concern that traders and farmers point out is the moisture stress the Kharif crop is under. India has reported 1.05 lakh hectares of Kharif onion as compared to 1.54 lakh hectares last year. The crop is under moisture stress with rains being absent from the first week of August. In case the monsoon does not revive soon, the Kharif crop might not be able to meet the demand of the market in the days to come.

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