India is facing a fresh supply shock due to a deficient monsoon, which has caused a surge in onion prices just as the country prepares for Diwali, a festival celebrated with much enthusiasm and feasting. The government has started releasing stocks from its reserves in an attempt to stabilize prices amidst high demand.
Onion prices have more than doubled in several states in just two weeks. Retailers attribute this rise to increased demand from households, eateries, and street-food vendors gearing up for Diwali celebrations. To counter the inflationary trend, the government will continue selling onions from its buffer stock in approximately 16 cities.
In the national capital, the average-quality onions are currently selling for ₹80 per kilogram, a significant increase from ₹60 last week and ₹30 two weeks ago. Similar price hikes have been observed in other cities, including Chandigarh, Kanpur, and Kolkata. Supply-chain intermediaries have expressed concerns that prices could further escalate.
The poor monsoon during June-September impacted the kharif onion crop in major onion-producing states like Maharashtra and Karnataka. This delay in harvest, combined with the near exhaustion of stocks from the winter crop, has led to the current surge in prices.
The consumer affairs ministry, responsible for monitoring prices of essential food items, has reported that wholesale onion prices in Maharashtra, the largest producer of onions, have dipped due to measures taken to curb exports.
In response to the rising prices, the government imposed restrictions on onion exports on October 28, setting a minimum export price (MEP) of $800. This move has already begun to show an impact, as prices in Maharashtra markets have declined by 5% to 9% from the highest levels recorded during the previous week.
The MEP is a price below which traders are prohibited from selling onions to international buyers. This measure is designed to limit inexpensive exports and increase domestic availability, thus helping to stabilize prices.
Although the consumer affairs ministry data indicates a 4.5% decline in the weighted average price of onions in Maharashtra across all markets, retail prices tend to adjust with a lag.
Supply-chain intermediaries have expressed concerns that prices could continue to rise as supplies have dwindled due to a delay in harvesting the summer-sown crop. This price surge isn’t limited to onions alone; it has also impacted other vegetables and fruits, such as green leafy items, pumpkins, and bananas, leading to an overall increase in food prices.
The government’s actions, including the release of buffer stocks and imposing export restrictions, are aimed at mitigating the impact of the supply shock on consumers and ensuring the availability of essential food items at reasonable prices during the festive season.
The ongoing challenge of managing food supply chains and prices underscores the significance of agriculture and monsoon patterns in India, where a large proportion of the population depends on agriculture for their livelihoods and food security.
As the government continues to address this issue, consumers and traders will be closely watching the markets to see if these measures have the desired effect in stabilizing onion prices and, by extension, addressing inflationary pressures in the food market.