Saturday, 26 October 2013

The Onion Republic

Though price rise of all the essential commodities, inflation and depreciating rupee are making headlines in India, but prices of onion is going through the roof and showing no signs of falling. It is bringing tears to the eye of  common people in India and they are wondering,  if there is more to the situation than meets the eye. Onions are now costing nearly 300%  more this month than in the same month last year and is increasing with each passing day. From about Rs.20-25 a kg at the beginning of 2013, it increased to about Rs.50-60 in July-Aug and Rs.80-100 in Sept-Oct.  India has the world’s largest area under onion cultivation and in terms of production volume, is only second to China, accounting for 19% of global production.  In the past 10 years, between 2002-03 and 2012-13, onion production in India has jumped from about 42 lakh metric tons to 163 lakh metric tons i.e. an increase of nearly 400%. In the same period, India's population has grown by about 1.7% each year. Therefore, higher consumption by an ever increasing population can’t be the reason for demand-supply gap resulting in steep increase in prices. In the current year, the production is expected to be 10-15% higher than last year, as reported by the National Horticultural Research & Development Foundation, Nashik under the Union agriculture ministry. Exports have remained at about 10% of total production for many years and another 10% is consumed in the processing industry as reported by Directorate of Onion and Garlic Research, Rajgurunagar - another agriculture ministry organization. So, exports or use by the processing industry are also not the reasons behind shortfall in supply. Apart from some dip in supply because of a rainy spell in September causing damage to some crop and transport problems, the real reason appears to be the way the supply chain of onions work in India. The periodic hike in fuel prices resulting in jump in the Wholesale Price Index may be at best only a minor reason for such steep price hike.
This abnormal rise in onion prices is the direct outcome of useless and corrupt policies of Union Agricultural Minister Sharad Pawar. He has justified all the price rise and took no action to control the mafia that exists in the trade by simply saying that “I don’t deal with this. Govt. does not control onions and does not sell onions. Prices are determined by the market”.  Excellent, Mr.Pawar – if the Govt. does not control onion prices, what does the Govt. do? Just watch the prices of essential commodities shoot up? First, let market forces raise prices to unimaginable heights of Rs. 80-100 per kg, then 'stabilise' it marginally to lower prices of around Rs.60-70 and let middlemen and  through them the politicians, earn profits.   MCA, BCCI and IPL are of utmost importance to our nation, minor stuff like food prices are for the common man to deal with, we shouldn’t  bother you with such things. You are the biggest imposter and thief, responsible for price rise of vegetables, sugar and many other food items.  Natural calamities like rain and flood come and go every year,  production may marginally fluctuate  by 4-5%  but that can’t lead to increase in price by 300%. Pawar also said that he was not in favour of a ban on onion exports, as such a move will hit India's image as a global supplier of farm produce. Strangely, across the border in Bangladesh, Indian-grown onion is selling almost at 50% cheaper than in this country. When a kilo of onion is costing Rs 80-100 in Malda in West Bengal or all other Indian cities, it is selling for Taka 63-64 (Rs. 45-47) in Rajsahi, Chapai Nawabgunj, Baliadanga and Dhaka Mirpur in Bangladesh. Almost 2,500 tonnes of onion are being exported daily through the five export centres of West Bengal at a time when the Central Govt. is mulling importing onion to keep prices in check. Yes, this same Food Minister has history of importing the same onion at Rs.40 a kg, which was exported to other countries at a price of Rs.30 a kg and then sell the same in this country at Rs.50 benefitting the import lobby who contribute to the coffers of the political parties in power.
 
The middle man system in the supply and marketing chain of agriculture commodities has been fuelling the onion price rise in the country. It is only because of the nexus among the brokers, whole sellers, stockists, traders and politicians that common people are suffering. They are blocking the supply to the retail market to shoot up prices and make money by releasing the stocks when prices reach abnormally high compared to what the farmers get for their produce. Politicians and political parties have share in this as they utilize this ill-gotten money for their personal benefit and funding elections. Government can’t even touch them because of their lobby, election funding and influence.  Union Food Minister Sharad Pawar is a politician from Maharashtra and this state is the highest producer of onion in the country followed by  Karnataka, Andhra Pradesh, Bihar & Gujarat etc. Maharashtra and Karnataka contribute almost 50% of India’s total onion produce.  The Agricultural Produce Marketing Committee (APMC) Act, a state-level law that dictates where a farmer can sell and who can buy, is promoting cartelisation. Generally onion trade is routed through APMC .  90% of APMC affiliated whole sellers and traders of onion are controlled by the Nationalist Congress Party (NCP) of Sharad Pawar. APMC Act has created a 'monopoly' of fixed number of wholesale traders against an infinite number of suppliers and consumers. Some traders have integrated forwards and backwards in the value chain - becoming, in the process, very dominant. Many onion traders are commission agent-cum-wholesaler’s order suppliers, forwarders-cum-store owners, and some are even transport or railway agent too. Such multiple roles by select few big traders have created monopolistic conditions. Lasalgaon near Nashik in Maharashtra is Asia's largest onion market, where traders buy stocks in auctions. Every time Pawar makes a comment at an opportune moment that there is scarcity of a certain food product due to low production, flood or draught etc.,  the wholesale traders take the cue from Pawar's statement. One can notice how onion prices rose from Rs.50 to Rs.70 within a day of the food minister's projection. Again recently,  Sharad Pawar owned “Sakal”  News Paper and “Saam TV” channel started creating atmosphere by giving news that onions are Rs.60 and would touch Rs.100 soon and next day price of onion reached between Rs.80-100 in different parts of the country. The real reason of shortage of crop is  the huge hoardings of onion by this lobby. But UPA Govt. can’t afford to displease or control him. After all, the few MPs of NCP are vital for UPA’s survival. This union minister caused similar anxiety at least thrice earlier and each time the price escalation has been irreversible. Pawar said on 2nd Dec’ 2009 that the country was facing a 70 lakh tonne shortage of sugar that would cause prices to rise, and they did. Until then, sugar was sold for Rs. 18 per kg but rose to Rs. 32 steadily. It is now available for Rs. 45. On 24th  Sept’ 2009, he predicted a shortfall in rice production, after which retail prices rose. He said a milk shortage would drive the prices up on 20th January’ 2010. And rates, which were stable for years, have been since revised every few months. Still he has the audacity to deny that wholesalers are hoarding or that a crackdown was necessary. As onion is routed through the APMC,  so if the government monitors who is buying it in bulk then hoarding can be prevented easily. The best way to regulate the price of onion is to have a dedicated monitoring agency overseeing it. Most of the reasons attributed for the price rise are not true. If farmers are getting only Rs. 30 a kg, how can it be sold for Rs.70 by the traders? The government needs to come out with strict guidelines on profit margins. Onions can be preserved for a few weeks and even those who hoard tonnes of onion for just a week can sell it for double the price in today’s market. The modus operandi of the brokers is simple. They extend loans to farmers for cultivation, faster than banks on condition that their onion stocks will be sold only to them. Farmers, who are fed up with the cumbersome process of obtaining loans from government banks, rely on brokers for loans. As per the agreement reached with the brokers, the farmers cannot sell their stocks by themselves. These brokers then collude with whole sellers to hoard this produce for release at the “right time”, which in their calendar means when they can make the most money from it. So even when there is bumper crop, neither the farmers nor the consumers are benefited and the only beneficiary are these middle men and their patron politicians. Around 27.5 lakh tonnes of onion were stored in the country for consumption in 2013. Of this, 15.50 lakh tonnes were kept in godowns in Maharashtra, 1-2 lakh tonnes each in Gujarat, Bihar, Karnataka, Madhya Pradesh, Uttar Pradesh, Rajasthan and Tamil Nadu. So, one can easily guess who is controlling the arrival of the product in the retail market. The onion price situation depends on production and market arrivals. Prices tend to peak during September-November and fall during January-March every year. Generally, onion storage gets depleted by August-September but by October new kharif crop arrive in the market. The average price in Lasalgaon even today is in the region of Rs.4,000 to Rs.4,500 per quintal. At this rate, the maximum retail rate should be around Rs.50 a kilo. But it doesn't work that way because traders manipulate the prices. Price of one particular consignment suddenly goes up for Rs.5,600-Rs.5,800 per quintal. This is deliberately done because after purchasing at this price, the traders set this price as their benchmark and then sell their entire stock at these rates. So, they are fooling both the farmers and the consumers. A report by the Competition Commission of India (CCI) on India's onion market, released earlier this year, has pointed at the domination of traders and 'commission agents' right from the primary mandis onwards, squeezing both the farmers at one end and the consumers at the other. This report clearly exposed the traders  colluding and acting like a cartel, the unequal relationship between traders and farmers and exports not being calibrated to domestic demand, all being perpetuated by loopholes in the rules. The only solution to this problem  is that the state govts. should directly buy onions from the farmers through their agricultural marketing agencies and  arrange to sale them to whole sellers at pre determined whole sale and retail rates to benefit common people. Also, when production falls due to various reasons the government should stop export and should have early warning system for alerting it for arranging import before prices could rise to sky high level. India also needs to add more warehouses, boost productivity and improve its predictions on output. CIC has also suggested  a short term solution to this abnormal price rise by advising the states to amend their respective APMC to allow for more traders. But this has not happened even in a state like Maharashtra, where the party of  Sharad Pawar, is in power and has a say in policymaking. And therefore, till Govt. takes step to break this unscrupulous cartel of politicians, brokers and wholesale traders - onion prices will remain nightmare for common people.  This onion scam currently going on is no less than a CWG or 2G scam. If 15 crore household in India uses 1 kg onion per week and the price is artificially hiked by Rs.20 a kg then 300 Cr.  is collected by this Trader-Politician lobby in a  week and if this price continues for a month, they become richer by Rs.1200 Cr per month. This amount is not taking into account onion purchased and used by hotels & restaurants, whose quantity is no less significant. No wonder, onion prices have sky rocketed over last few months as Elections are round the corner. So, is it wrong to say that our country has turned into an “Onion Republic”??