india

Updated: Oct 31, 2019 05:51 IST

The government is weighing policy options to increase the area and production of onions and tomatoes in northern states to tide over supply disruptions from southern and central states, especially during the monsoon months, that cause prices of the vegetables to spike.

The consumer affairs ministry has proposed to the horticulture commissioner under the agriculture ministry that increasing production of onions and tomatoes in states such as Haryana, Uttarakhand, Rajasthan, Punjab and Uttar Pradesh be included in the Mission for Integrated Development of Horticulture, according toan official with knowledge of the matter.

This is a centrally sponsored scheme in which the Union government funds up to 60% of total costs, with state governments contributing the rest. In the case of hill states, such as Himachal Pradesh and Uttarakhand, the Centre’s share of funding is higher at 90%.

Onion prices more than doubled in many cities since August. They have since settled at around Rs 50-55 a kg in retail markets. During times of normal supply, retail prices usually range between Rs 20 and Rs 30 a kg.

Heavy rains during August-September in Maharashtra, the biggest onion producing state, as well in Madhya Pradesh and Karnataka, disrupted onion shipments to northern India as well as other parts of country. Unseasonal rains could have damaged nearly 30% of the onion crop in Maharashtra, said Shirish Jamdade, an official in the state’s horticulture department.

The main summer onion crop — sown during May-June and harvested in October-November — accounts for just 15% of the country’s annual output. Yet, this crop is critical because it replenishes markets at a time when they generally run out stocks from previous harvests.

Traders who rely on stocked onions they set aside for such seasonal shortages then up prices, leading to inflationary spells.

According to data from the National Horticultural Research and Development Foundation, rain-led disruptions caused onion arrivals at wholesale markets in September to slump to 3.5 million quintals until September 25, from about 6 million quintals in the previous year.

Higher production in northern states can ease supply shocks in eastern states such as Bihar, West Bengal and the north-east, an official with knowledge of the matter said on condition of anonymity.

During the price spiral last month, metros such as Mumbai and Delhi were the worst hit, and retail onion and tomato prices soared to Rs 75-80/kg.

Sowing of the country’s main summer onion crop was delayed by over a month in Maharashtra due to a sluggish start to this year’s monsoon in June, which pushed back harvests in what is a lean season, another reason for the price spike.

On September 13, the Union government curbed exports by raising the minimum export price (MEP) of onion to $850 a tonne (about Rs 62,000). Imposition of MEP makes an Indian-origin commodity expensive for foreign buyers, thereby discouraging shipments abroad.

As prices failed to cool, the government then imposed a ban on export of onions on September 29 to augment domestic supply and cool prices.

The horticulture mission, under which onion output is sought to be raised in northern states, will aim at “productivity increases through improved varieties, quality seeds and planting materials”, the official cited above said. The mission also aims to promote subsidised greenhouse cultivation and horticulture mechanisation.

“If implemented properly, the proposal for higher production within northern states can fulfil demand during the lean phase. But the scheme may need to offer some form of subsidy and be also backed by higher procurement of onions,” said Alok Kumar, a former horticulture scientist at the Indian Council of Agriculture Research. The government usually buys onions from farmers to build a buffer stock; this stood at 44,205 tonnes in June 2019.

Price spikes in onions increases overall food inflation, potentially upsetting the Reserve Bank’s inflation target. Higher inflation can cut economic growth and affect businesses by making borrowing expensive.

Onions are the second most consumed vegetable in the country after potatoes. An average Indian household spends 13% of its total vegetable bill on onions alone, according to HT’s calculations from the 2011-12 (latest available figures) Consumption Expenditure Survey (CES) conducted by the National Sample Survey Office. CES is the most authoritative source of consumption data in India. To be sure, spending on vegetables was just 10% and 9% of total food spending in rural and urban India in 2011-12. Cereals, milk, and milk products had the biggest share in food consumption in India.

Onions have an overall weightage of 1.7% in the food inflation basket. According to a calculation of Kotak Institutional Equities Ltd, assuming a 50% rise in onion prices on an annual basis, wholesale food inflation would swing up by 80 basis points. That translates to a rise of 30 basis points in retail food inflation. One basis point is one hundredth of a percentage point.