Onions produce a chemical irritant which stimulates the eyes to release tears. Little did the Indian farmers know that growing onions will also make them cry. The farmers only control how much they can produce and have absolutely no say in how much they get paid.
The political power of the Onions:
Onions are an important ingredient in many Indian recipes and hold a significant position in the diet across all the income groups. An increase in price of onion affects the consumer by way of increase in food consumption budget, while a decrease in onion prices below the cost of cultivation affects the producer. Given the impact the volatile nature of the onion prices and it’s impact on the ordinary Indian, the onions have become a powerful political tool helping the parties to play politics at the expense of the same ordinary Indian.
The prices of onions are more volatile than those of the non-farm commodities due to low price and income elasticity (ratio of percent change in quantity demand to the percent change in the income) and inherently unstable production. Additionally, market inefficiencies, weak supply chains and traders cartels in the market aggravate the problem.
The Onion Farmers
- Most of the Onion farmers are small and marginal farmers
- Most of the farmers had to sell their produce on the prices decided by commission agents and traders and many of them were not happy with price they received.
- Many farmers felt that the government should purchase or help them in selling or exporting their onion or at least help them in getting a price of Rs.1000 per quintal so that they cover their cost of production and earn a reasonable return on cultivation of onion. NAFED ( National Agriculture Cooperative Marketing Federation of India) does not purchase directly from farmers.
- Traders hoarded onion in anticipation of higher prices.
Onion Exports: India ranks #2 in the world and yet the farmer is paid the lowest price.
Market structure of onion is unilaterally dictated by the traders, not farmers; reasons-
- Minimal role of farmers in price discovery due to low size of average farm holdings (1.15 to 1.3 acres) and unfavorable weather conditions and price risk.
- Most of trading is in the hands of commission agents and traders
- Traders buy small lots from the market yards and pool the produce for sorting or grading at their packing houses and market different grades to different markets all over India.
- Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of the farmers to make any dent in onion trading.
- Access to information – Farmers generally take reference of the local markets‟ rates,
- Traders compare rates of all markets, including major distant and export market and then decide where to send their produce of a particular grade. This brings greater profits to them
- Lack of capacity to conduct multiple roles prevents farmers and their organizations to compete with traders;
- Existence of established traders and barrier to new entry is a typical market phenomenon; and less number of active traders during slack season also reduces competition.
- Lack of alternative institutional support system – Exclusive onion growers‟ association (farmers‟ associations, co-operatives) has not been evolved. Little efforts done to innovate their short period business, with year-long expenses;
- A few big traders having well connected networks with market intermediaries in other markets seem to play a major role in hoarding for expected high prices.
- In December 2010, onion prices increased; retailers‟ markup over the wholesale markets price was more than 150 per cent in almost all major markets in the crucial weeks of December 2010.
- The December 2010 episode was not simply “demand (buyers) and supply (farmers) problem”.
- Market functionaries often resort to a strike which finally ends up in market closure. When the market is closed, stocks pile up which has a downward impact on prices.
- Export ban and arbitrary practice of fixing Minimum Export Prices (MEP) for onion often cost exporters in in terms of losing their credibility in export markets as irregular suppliers. Even though the MEP is fixed at very high levels, exporters manage to sell at prices below MEP though fake documents.
- Big traders benefit despite of high MEP. Fixation of MEP makes small exporters reluctant to export which sometimes leads to excess supplies in domestic markets, leading to fall in prices.
- Lack of market infrastructure is common problem in Maharashtra and Karnataka (MAH has only 880 regulated market (RM) against 3916 required;
The journey of the Onions from the farm to the market:
The farmer has very little to no information about the market prices. This coupled with the lack of storage, lack of trading expertise, the farmers had to rely on the middle men, the commission agents to sell their hard work at dirt cheap prices, because the farmers are forced to contend with getting paid something rather than nothing at all.
The Agricultural Marketing
The agricultural marketing suffers from many handicaps in India. Though sector has largely been controlled by the state, it is private players who dominate the sector. The agricultural markets are imperfect in nature. Infrastructural facilities in and around of these markets are not up to the mark and are heavily under-invested. The uneven development of regulated markets, the inability to fight the vested interests of traders, the persistence of traces of collusion amongst traders in regulated markets have deprived the farmer of his due share in the final consumer‟s price, besides facing other hardships during sale of his produce.