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Why onion prices are inching towards Rs 100 per kg

Onion prices have shot up sharply across the country following a surge in wholesale onion prices at Lasalgaon in Maharashtra (Asia's biggest market) where prices hit an all-time high on Friday. Rising onion prices have not only hurt household budgets in the festive season, but they have also become a political issue ahead of assembly elections in five states. A 323% jump in onion prices pushed September inflation to 7-month high, raising chances of another rate hike later this month.
Here are the reasons for the sharp rise in onion prices:
  1. Onion is the mainstay of many Indian staple recipes, but 45 per cent of the produce comes from the states of Maharashtra and Karnataka. As a result, if harvest is hit in just one-two states, onion prices tend to rise.

  2. The area under onion cultivation in Maharashtra is expected to decline this year. Lower production from a state that accounts for nearly 25 per cent of onions produced in the country, has impacted supplies.

  3. July-September is considered the lean period for onion, during which demand is met from rabi (summer) stocks. The kharif (October-November) crop, which starts arriving in markets at the end of September, has been damaged by unseasonal rains.

  4. Nashik-based onion expert Satish Bhonde said the kharif crop that was ready for harvesting in Maharashtra, the largest onion growing state, has got damaged and hence supplies could not be transported to consuming states.

  5. Earlier, rains had also damaged the summer or rabi crop (March to May) in key onion-producing states, making the supply squeeze worse. The rabi crop accounts for over 50 per cent of onion production in the country.

  6. The mismatch between demand and supply has led to hoarding of onions and is leading to artificial rise in onion prices. Food Minister KV Thomas on Tuesday said he will speak to states and ask them to look into issues of cartelization.

  7. Summer onions, which can be stored for more than six months, have been exhausted. These onions, which are mostly exported and used by restaurants and the food-packaging industry, command a higher premium. Now, the new kharif crop, that has lower shelf life, has also been hit by rains, so price volatility has gone up sharply.

  8. Maharashtra is one of the few states where onions are grown thrice a year. But two out of these three crops, including the current kharif crop, are highly perishable because of high moisture content and start rotting within a month.

  9. The economics of demand and supply is playing out currently. Onion supplies are less than 50 per cent of the country's monthly estimated total demand of 9-10 lakh tonne, PTI said citing analysts. Shortage of onions in the festive season, when demand spikes, has led to a surge in prices, traders say.

  10. Shifting consumption pattern among Indians have often been blamed for the rise in food prices, including onions. Indian are consuming fewer cereals, like wheat, and more vitamin- and protein-rich foods, like onions and chicken, experts say. This means prices for non-grains have been rising faster than those of grains for several years now.

(With inputs from Reuters)

Story first published on: October 22, 2013 13:55 (IST)

Tags: onion, onion prices

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