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The Price Of Onions And Potatoes!

By Expert Author: Sanjeev Chopra

Come September, and concerns about the prices of onions and potatoes becomes centre stage. Consumption tends to rise because of the festive season, and prices tend to be higher because the market is completely dependent on ‘stored onions’ and ‘erratic rainfall’ in any of the production centres sends signals which impact prices. Some papers base their assess mention market arrivals, others on estimates of ‘sown area’ and consumption data of the previous years. In the case of onions, the Minimum Export Price, and its likely impact on domestic production becomes a major issue, with producers and exporters demanding lower MEP, and consumer groups wanting a higher MEP to ensure higher availability in the domestic circuit.

This year, the Small farmers Agribusiness Consortium engaged AgriWatch top repair weekly assessment reports of the movement of prices of the two commodities by consolidating information on market arrivals, area under production, export demand, prices in neighboring countries and West Asia. Over the last few weeks, the methodology has been refined to capture the prices of stored onions and potatoes, likely transport costs and wastages, prices in wholesale markets and retail points. The results suggest that there is no cause for alarm in both the commodities.

Let us first look at onions. It is true that the inadequate and erratic rainfall in Maharashtra and Karnataka affected Kharif sowing, and it is expected to be twenty per cent lower than in the previous year. However, given the carry -over stocks from the good Rabi production this year and the increased on farm storage, especially in Maharashtra, prices are expected to be in the upper range of Rs 25/per kg in Delhi (October), and Chennai (November) and hovering around Rs20/kg in Kolkata and Mumbai markets for the next three months. The fresh stock of Kharif onions will appear in mid- November, thereby easing prices again in December.

Why is the situation so different from 2010 when the price of onions had shot up to Rs 80 /per kg in December, thereby leading to a temporary ban on exports? This columnist feels that simple ‘on- farm’ onion structures, which are nothing more than ventilated bamboo/wood structures which are raised three feet from the ground to allow for air circulation. These structures allow the onions to ‘breathe’ thereby allowing them a shelf life of three to four months , thereby preventing distress sale in the peak Rabi season . As per reports from Maharashtra, over 16 lakh MT onions have been stored on the farmer’s field, thereby ensuring low cost disaggregated storage and allowing the farmers to strike a fair bargain.

The SFAC –AW analysis also assumes that exports continue at 5 lakh MT per month, and that government will not re-impose the MEP. Also the monthly consumption of onion is pegged at 10.5 to 11 lakh MT per month.

In the case of potato, prices are higher this year, compared to last year because potato production in 2011-12 was less than in the previous year which was an all-time high. Potato prices are easier to predict and follow as the main production cycle, Rabi, covers 85 % of the crop, and is kept in cold storages. Every year, prices have to scale down after November, both on account of arrival of fresh Kharif crop, which is not very high in itself, (15%) but affects the market sentiment and the need to empty the cold storage for the next Rabi season. In fact, in December, prices of potato crash, and many cold storage owners also dump the potatoes on the road as they feel that the costs have not been recovered.

However, let us discuss the prices over the next few months. The monthly consumption is in the range of 3 to 4 lakh MT, and consumption peaks towards November December when the prices are at the lowest on account of the reasons articulated above. Thus they are expected to peak at Rs 20/- per kg in Delhi in October, Rs 32per kg/- in Chennai (October), Rs 27 per kg in Mumbai (October) and Rs 32/-per kg (Chennai). After October, the prices will dip marginally, and lose between Rs 4-6 per kg in all the markets. Of course, there is the caveat that diesel prices will not be raised, for if the transportation charges are raised, there is an upward price spiral.

The policy question with regard to potato is whether to invest in cold storages near the consumption centres, or introduce a dedicated horticulture train from the main production centres like Kolkata or Agra to ferry the produce twice a week to ease prices in Chennai and give a better realization to farmers, besides ensuring that the cold storage capacity can be used for commodities other than potatoes. The equation does work out better for the train, but as was pointed out in the column a few weeks ago, having infrastructure is not an end by itself. Revenue models have to make sense, and one of the biggest bottlenecks to the Horti train is the non-applicability of concessional tariff for agricultural produce if it is moved in containers rather than the ordinary wagon. This makes it difficult for the farmers and traders to make the transition because of higher costs; though it is realized by one and all the quality of produce is markedly superior. This is a long term policy issue for consideration: in the short run, there is apparently no need to panic.

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