Despite ample production, hoarding by big traders result in onion price riseConcerned by the rising retail prices of onions, government banned its export on September 9 but within 11 days of imposing the ban, the powerful traders lobby forced the government to lift the ban. Succumbing to pressure from the big traders, who normally cry hoarse in the name of farmers, the speed at which the onion trade made the government to bend backwards is a pointer to the monumental failure to curb food inflation.
For over 4 years now, ever since food inflation has hit the roof, I haven’t seen so much of political activity as I have observed in the last few days. Triggered by protest by Nasik onion traders, who had refused to partake in daily auction to demonstrate their anger against the sudden imposition of exports ban, the state NCP chief Madhukar Pichad made appeals to Prime Minister Manmohan Singh and the Commerce Minister Anand Sharma. Maharashtra Chief Minister Prithviraj Chavan too deputed his Agriculture Minister Radhakrishna Vikhe-patil and some of his colleagues to meet Finance Minister Pranab Mukherjee and other concerned ministers.
According to news reports, Prithviraj Chavan had himself lobbied with Pranab Mukherjee and Anand Sharma seeking an immediate withdrawal of the ban on onion exports. Union Agriculture Minister Sharad Pawar too had thrown his weight behind the agitating traders and had met Food Minister K V Thomas to impress upon him the need to allow onion exports. He forcefully argued in favour of onion exports at the meeting of the empowered Group of Minister (eGoM). Knowing the influence Sharad Pawar wields in UPA II, it was expected that the government would give in.
After the much-awaited eGoM that met under the chairmanship of Pranab Mukherjee on September 20, Food Minister K V Thomas announced the lifting of the ban subject to a minimum export price (MEP) of $475/tonne. While no quantitative restrictions were announced, the high MEP is expected to act as a dampener on onion exports. Seeing the steady rise in open market onion prices for a month or so, the MEP had been steeply raised by $ 200/tonne within a span of a month. In mid-August, the MEP stood at $ 275/tonne.
When onion prices jumped from Rs 35/kg to Rs 60/kg in retail last year, Commerce Minister Anand Sharma had said that the price rise was because of hoarding as the country had enough stocks. This year too, when onion prices had begun to rise, Anand Sharma said on record that the price rise was because of hoarding.
There are reasons to understand the panic the Food Ministry must be under when it decided to impose a ban on onion exports. Knowing well the stupendous rise in the prices of onions in the retail market just a few months back, when for no justifiable reasons the consumer prices had swung to a high of Rs 80/kg, the Food Ministry was certainly being over-cautious. Heavy rains in the last week of August had further slowed down transportation of onions from Maharashtra, thereby adding to the woes of the consumers. In mid-August, Food Ministry first tried to restrict exports by raising the MEP by $45 to bring it $275/tonne, but it failed to control the retail prices. And when open market prices increased to Rs 25/kg, the panic button was pressed.
For the past three years, September has been the worrying month. Last year, heavy exports undertaken in September were blamed for the subsequent shortfall in onion availability in December when a sudden jerk in prices had brought tears in the eyes of the consumers. When onion prices jumped from Rs 35/kg to Rs 60/kg in retail last year, Commerce Minister Anand Sharma had said that the price rise was because of hoarding as the country had enough stocks. This year too, when onion prices had begun to rise, Anand Sharma said on record that the price rise was because of hoarding. I remember when the government went into a tizzy last year, the Nafed chief had expressed surprise at the price rise. He told the media that there was roughly 20 per cent more supply, and despite the rain damage to the standing crop in September, the price rise defied any logic.
The legitimate question that follows is then why is the government unable to crackdown on hoarders. More so at a time when onion production was estimated to be at record 145.62 lakh tonnes last year. This year, the crop is still better and estimates point to an overall production of 151.36 lakh tonnes.
Now, let us look at how politics is defining the rise in onion prices. Even before the prices had stabilised to Rs 50-60 per kg last year, Anand Sharma had met some of his fellow cabinet colleagues and impressed upon them the need to support the opening up of multi-brand retail. Finance Minister Pranab Mukherjee, Home Minister P Chidambaram and Defence Minister A K Anthony had taken part in these discussions. Why the urgency? Anand Sharma had replied: “Policy formation is a dynamic process, and we are very progressive and forward-looking.”
India is under pressure from G-20 leadership to remove all barriers in opening up to multi-brand retail. British Prime Minister David Cameron, US President Barack Obama and the French President Nicolas Sarkozy during their separate visits to New Delhi had reportedly impressed upon Prime Minister Manmohan Singh on the urgency to open up for multi-brand retail.
In fact, he also met the media the same day (Dec 23) to inform them about the dynamics of multi-brand retail. According to a news report: “While Mr Sharma rejected the argument that there was a link between the soaring onion prices and the opening up of multi-brand retail to foreign direct investment, the demand for liberalising the sector has been intensifying, especially in the wake of wide gap between the wholesale prices and retail prices.” It was therefore quite apparent that the onion price hike in Dec 2010-Jan 2011 was a manipulation to justify the approval for FDI in multi-brand retail.
India is under pressure from G-20 leadership to remove all barriers in opening up to multi-brand retail. British Prime Minister David Cameron, US President Barack Obama and the French President Nicolas Sarkozy during their separate visits to New Delhi had reportedly impressed upon Prime Minister Manmohan Singh on the urgency to open up for multi-brand retail. No wonder, the government has been trying its best to project the need for big retail. With the political environment is still not conducive, there is no reason to disbelieve that there is a deliberate effort to establish that multi-brand retail remains the only option to bring down the retail prices.
September-October is generally a lean period for onions. Its arrival in the mandis slackens during these months, and to meet the market demand traders maintain enough stocks from April onwards. With the arrival of the new crop in the second half of October, prices generally ease. Knowing the seasonality of the production cycle, the Food Ministry should have waited for a little more time before the sudden knee-jerk action of banning exports. Such ad hoc decisions when it comes to commodity exports results in a loss of confidence among importers as a result of which the trade suffers. More often than not, exports only help traders whereas onion farmers continue to be paid a fraction.
This brings me back to the original question why the government has been unable to control food inflation. Well, looking at the way the big traders have forced the government to retract its ban order, the fact remains that so much of political activity was never seen on the issue of price rise. The reason is obvious. No political party wants to ruffle the big traders with any stringent action. Traders hold the key to the political purse, and a crackdown against hoarding and speculation would mean chopping off the financial cord. We must therefore learn to live with food inflation.
