A marked feature of the United Progressive Alliance government’s second term has been a tendency to panic when things go out of hand. And often it is clueless about how to tackle the situation. This was the case when onion prices shot up recently. The government does not seem to have learnt its lessons from the events in the onion market during 2010-11.
Price surge Onion prices galloped to over Rs.70 a kilogram in retail markets across the country twice over the last couple of months.
At the Lasalgaon Agricultural Produce Marketing Committee yard in Maharashtra, Asia’s largest onion market, prices hit a record Rs.55 a kg during the middle of September.
They began to drop on talk of imports, but may surge again with the rains delaying harvest in Maharashtra. Last month, prices rose as rain delayed arrivals in Karnataka and Andhra Pradesh.
In fact, as early as July, when the prices were tending to rise, government officials monitoring the situation stated that onion was not only held back by farmers, expecting a higher price, but also hoarded by traders. The government failed to step in, and the prices rose.
The 2010-11 crisis The irony is that a similar situation arose during December 2010-January 2011, when the prices at retail outlets touched Rs.100 a kg. However, at that time, the price for the best variety at Lasalgaon did not go above Rs.40 a kg.
At that time, the Competition Commission of India conducted a probe into the price rise. It asked the Agricultural Development and Rural Transformation Centre (ADRTC) at the Institute for Social and Economic Change in Bangalore to do a study of the crisis. The institute found that prices had soared because traders had formed a cartel. It also said that farmers had little say in deciding the prices and recommended allowing of a new set of traders and commission agents into onion markets.
However, the government did little in this respect.
The export front This time, although the government refrained from banning exports, it raised the minimum export price to $900 a tonne. The ADRTC was opposed both to the ban on exports and to the fixing of a floor price for export, on the grounds that these affected the growers the most.
In fact, in end-2011, when the government imposed an export ban, it hardly lasted a fortnight as farmers refused to sell.
The price movements and arrivals are clear indications that the price surge is not based on any fundamentals but on cartelisation.
Will the current surge lead to a situation that we saw in 1998 when the Bharatiya Janata Party governments in Rajasthan and Delhi were thrown out? It was a cartel that was behind the price surge at that time, too.
Sources: Apeda; U.N. Comtrade, NHRDF, FAO
