Tuesday, January 11, 2011

Why have onion prices skyrocketed? Solution?

Onion is one of the most common vegetables used in every household - be it in a poor, middle class or rich family. For everything onion is used. The rising onion prices brought down the government of Delhi headed by Sushma Swaraj in 1998.  Exactly last year around this time, I had written an interesting and a well researched article - Why vegetable prices are soaring? Read this article just to refresh the mind and it would be easy to follow the content below.

This is what the most intelligent political minister (apart from Manmohan Singh whose intelligence is never allowed to come out free and fairly) in the current Government led by Congress who is also a Harvard university graduate  gave a statement like this.

"Inflation is high, food inflation is very high... we are not sure whether we have all the tools in hands to control food inflation,"

It is like saying in Hindi - "Saawan jo aag lagaaye use kaun bhujaaye" - i.e If rain which is supposed to extinguish fire itself sets fire, then who is going to extinguish it? If a govt which claims that it is AAM AADMI allows the prices to escalate and then say they have no tools to control, who will help the AAM AADMI? While it is true that there is no single formula to contain inflation, the Govt can do several things to ensure that the prices are in check. Simply raiding on hoarders, cracking down on speculators won't work. How can we convincingly say that the real culprits are being booked for? Several times there is a nexus between the officials and the hoarders and hence it is not effective.  Banning exports is a tried and tested idea.

None of these are able to bring down the prices of onion. In the wholesale market, people purchased onions at Rs. 34/- while from the retail at Rs.80/- What a difference. The margin is more than 120%. What is causing this difference? The profit margin can be at max 30% but not 120%. Who is eating away the money? Why are consumers helpless?

If you carefully analyze my earlier posted article on "Why vegetables prices are soaring high?", it would be aptly clear that there is no regulation on how prices can be increased and decreased. Anyone sets arbitrary prices and that penetrates the market ultimately making the consumer suffer. The farmer never gets the right money. The consumer ends up paying entirely jacked up price. 

The middle layer which consists of hoarders, speculators, commission agents really capture the market. The commission agents get almost 6% paid in several markets in Delhi. These commission agents bring the wholesaler to suppliers and get the profit. In Bangalore, several truck load of onions were auctioned in the market. Here's an article that explains how onions were auctioned in markets in Bangalore. 

When prices dip below, the farmers strike. The middlemen say they are not be blamed. This has distorted the demand supply chain. The govt simply says due to excess rains onions were destroyed in Maharashtra, but couldn't the Govt take enough steps? It simply will not. As long as our system depends on the Govt to deliver, we will fail to see it.

Here's the chart printed in Times of India newspaper indicating the profit margins made in different cities.

So, what's the solution?

It's high time that government gives a serious thought to contract farming and/or allow FDI in retail. In contract farming there is usually a legal agreement between companies/corporates and the farmers. It works both ways - companies assure good prices and farmers assure regular supply. The classic case is how GUJARAT FARMERS are progressing due to contract farming in cotton. Another classic case is PUNJAB farmers and Pepsico have joined hands and are making farmers rich, spurring rural growth.

If just one or 2 companies enter the market, they can create a monopoly. However, if several companies come into the focus, prices will have to come down for each of them to survive.  There is no way for Govt to regulate the prices and assure right prices to farmers through the APMC yards or mandis. These are to protect the farmers, but they are destroying them. 

These APMC yards and government godowns are not good enough to store any vegetables or any farm products. Contract farming will ensure that the supplies are stored and processed correctly. 

What makes contract farming more productive is that companies will emphasize the need for using efficient water irrigation techniques, better seed inputs, fertilizers and guide the farmers. These ensure that the crops are healthy and fetch high value. The knowledge imparted to farmers is immense that they can give it to the next generation while the market and the consumer benefit the most. 

Just think - When BSNL had monopoly over telecom industry, what service and quality did we get? The moment Spice, Vodafone, Airtel and several such companies came into the market, the prices dropped so low that India perhaps has the lowest cellphone tariffs in the world. It is another matter that our broadband hasn't caught up that much. That day is also not far when even this problem will slowly fade away.

There are people who will always complain against capitalization of agriculture. The fact is the existing system is in no way better and is only causing immense distress to the farmer and the consumer. Regulation can be done, but the initiative has to be taken. Convince me as to how the existing system is helping the farmer, forget the AAM AADMI. 

Will someone in the govt listen? Definitely, "No". This is because Congress is assured that it will win the next elections when Rahul Gandhi will become the PM. There is an over confidence and complacency set in the minds of the Congress. The opposition BJP must support contract farming as it allows in its own state of Gujarat and Punjab. It should not catch in votes of the people who will vote against contract farming.

The Govt is busy in drafting National Food Security Act. What use will such an act do if we don't plug the loopholes in our transportation and distribution mechanism of food? There is no denying that Congress party built this country, but will it allow to ruin now?

The AAM AADMI wants solutions. The growing Indian market requires urgently these bold steps. It is important to remove the layer of immense profiteering by several hoarders, middlemen and commission agents.

It simply is pinching the pockets of every Indian. The rising prices of onions has made onion items removed from several restaurants both in Bangalore and Mumbai. WATCH THIS VIDEO FOR THIS. They are charging extra if a person orders Onion Dosa, Onion Sambar etc. It looks like everyone has to jump to the Jain diet of not having onions and garlic.


Adarsh Bhat said...


shashank said...

I bow to you for making this blog one of the most exciting ones i have seen in the recent times. I see everyone bashing India and it hurts me a lot when i see fellow Indians cribbing about the current state of India, all they do is work in the US and crib about India day in and day out. Please keep up the good work, I see so much optimism coming out from your blog and makes me feel proud being an Indian. I currently reside in the USA but within a year or two I will be heading back to my mother land and I have this dream of writing the civil services and contribute to the betterment of my society, Hope i will achieve my dream.......Jai Hind

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