Onion price quadruples in two weeks on low supply

Onion prices have quadrupled in the last two weeks due to lower supply as farmers and stockists held on to their inventory on expectations of a price spike.

Also farmers in Nashik are shifting to other horticulture crops, including grapes and pomegranates, This has lowered the onion crop’s prospects in the ongoing kharif season.

Data compiled by the National Horticultural Research and Development Foundation (NHRDF) showed onion prices in Lasalgaon at their highest in two years at ~26.60 a kg on Thursday. The modal price closed at ~21.60 a kg in Asia’s largest onion mandi on Friday, compared to ~6.80 a kg two weeks ago.

There are two forces driving onion prices. First, assuming that the government would not allow onion prices to shoot up, many farmers sold most of their produce at ~5-5.50 a kg, the price obtained over the last two years barring volatility. Hence, onion supply to mandis declined sharply over the last two weeks. NHRDF data showed onion arrivals in Lasalgaon declined to 2,000 tonnes on August 4 from 2,284.5 tonnes on July 21.

“Onion supply to mandis has declined over the last two weeks due to low inventory with farmers and stockists. This scenario is likely to continue for at least six weeks, till the time the early harvested crop from the south arrives in mandis,” said Ajit Shah, president, Horticulture Exporters’ Association.

Secondly, a number of farmers in Nashik have shifted to other remunerative crops, including grapes and pomegranates. Farmers have invested in field preparations for these crops and consequently acreage under onion is likely to remain low this year. Apart from that, heavy rainfall and floods in Gujarat and Madhya Pradesh have caused stocks to rot, resulting in demand pressure building on the Maharashtra inventory.

“Our realisation was inadequate to meet the cost of cultivation. Onion farmers did not get any return over the last two years. We, therefore, had no option but to change to other crops. We had 14 acres of land under onion two years ago of which we have planted grapes and pomegranates on 6 acres. Our onion acreage declined by 40 per cent. We are not alone in this. Most onion farmers in Nashik have shifted a part of their land holding to other crops. The area under onion is set to decline this kharif season,” said Arjun Kadam, a farmer in Lasalgaon. Farmers who have shifted to grapes and pomegranates are unlikely to come back to onion anytime soon.

According to the Agricultural and Processed Food Products Export Development Authority (Apeda), Maharashtra tops in onion production with an annual share of 27.72 per cent of the national output.

The agriculture ministry in its second advanced estimates has projected India’s 2016-17 onion output at 21.56 million tonnes, up from 20.93 million tonnes in the previous year. The acreage under onion, however, declined to 1.27 million ha in 2016-17 from 1.32 million ha in the previous year. Atul Shah, director of the Pimpalgaon APMC, said onion prices were unlikely to decline from their current levels for the next two months due to the supply issues.