The acute shortage in supply of onions has caused a spike in its prices from a reasonable Rs. 10/kg in June to an exorbitant Rs. 80/kg in August. This is said to be a major blow to an average consumer, especially after the economic crisis of the last decade hit the Indian economy. For a country which consumes 15 million tonnes of onion per year, it is extremely worrying that a vegetable which formed a staple ingredient for meals in almost every household has now become an unaffordable luxury for the masses.
Initially, Sharad Pawar, the Agriculture Minister stated that the reason for such an increase was that drought hit crops last year and heavy rains destroyed them this year leading to low stocks. Supply-demand constraints and other such economic reasons were also cited. However, according to the Chief Economic Advisor of India, Kaushik Basu, cartelization and hoarding amongst traders and other entities have resulted in the skyrocketing prices of onions. They buy onions at farm gates and sell them at much higher prices in cities to equalize the price gap. According to the data compiled by the National Horticulture Research and Development Federation (NHRDF), supply shortage was caused due to alleged cartelisation by large stockists near major mandis who were releasing the quantity very slowly. Devinder Sharma, the popular food and policy analyst suggests in his article on Tehelka, that a handful of trading families have cornered the entire trading activities, thereby very conveniently manipulating the market as large-scale hoarding of onions goes on unchecked because no political party wants to ruffle the traders with any stringent action as it could result in financial damage to them.
However, the Reserve Bank of India (RBI) and many economists believe that the problem lies in demand-supply gap. The solution for bringing down inflation according to this school of thought is that the demand-supply gap needs to be bridged, especially by policy changes. RBI director, Deepak Mohanty observed that, "...it is important to aim for nutritional security not only to harness the demographic dividend stemming from our sizable young population but also to contain food prices. This will require addressing the supply-demand imbalance in the agricultural sector and modernising the supply chain." Further, the fact that the Agriculture Minister, isn’t interested in banning onion exports is also a crucial factor in the high price, as it creates a greater pressure on demand for onions.
The Competition Commission of India hasn’t launched a formal probe into the matter, however it is monitoring the price fluctuation on the basis of an earlier report titled Competitive Assessment of Onion Markets in India, 2012, with the help of Bangalore based Institute for Social and Economic Change. The Report suggested that there could be some cartels which would engage in hoarding to keep the market price high. Firstpost suggests that only if the Commission comes across anything substantial, will an official investigation begin by the Director General of CCI’s Investigation Wing.
The Competition Commission of India, can u/s 26(1) of the Competition Act formally probe into matter. Section 26(1) empowers the CCI to probe suspected anti-competitive agreements including cartels, if it thinks "there exists a prima facie case”. The competition watchdog in past has used its powers under section 26(1) to investigate.
The earlier report in its conclusions held the following
Farmers have barely any role to play in price realisation of onions
Existence of established traders has resulted in a barrier to entry. This coupled with farmer’s lack of capacity to conduct multiple roles have strengethened the traders.
Results of seasonal indices, correlations, daily, monthly arrivals their prices, etc. indicate existence of anti-competitive elements in the onion markets. A few very big traders having well connected networks with market intermediaries in other markets seem to play a major role in hoarding for expected high prices
The hike in price in 2010 was not a case of mere demand and supply.
Collusion was observed among traders in selected markets in Maharashtra and Karnataka.
Since sharp rise in onion prices is not new, and happens almost every year during this time of the year, it would be interesting to watch CCI’s findings, as one school of thought indicates the formation of cartels playing spoilt sports; the other blaming demand and supply, and citing the need to mordernise the supply chain, as a possible solution to this problem.
Previous orders, dated 10th April, 2012, in the Onion Cartelisation case can be found here, and here.
This post has been authored by Harshil Parekh and Yamini Kumar, students of 4th and 1st year respectively, of West Bengal National University of Juridical Sciences, Kolkata.
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