AgriMatters is back. This time with onions and the steps that can be taken to ensure that price volatility remains within an accepted range. Readers may recall that after the sudden spike in the prices of onions in January 2011, the prices have been more or less stable. Is it because production has stabilized? Is it because we have become better at forecasting the production trends? is it because in the last two years, the thrust on ‘on-farm’ storage at farmers field has yielded positive results, and given farmers the option and the flexibility to dispose their stocks on a weekly, or even fortnightly basis, rather than immediately after the production cycle. Have the relaxation of Kisan Credit norms and the possibility of storage under bonded warehouses made an impact? Has a liberal EXIM (export-import), and the abolition of Minimum Export Price (MEP) regime helped the process of price discovery, and removed the distortions in the market? And last but not the least; is onion ready for futures trading?
Let’s start with the production cycle. Onion is grown almost all round the year in some part of the country – but the chief production season /area is Rabi onion in Maharashtra, Gujarat and MP. Then there is Kharif and late Kharif onion also – but these together would account for less than one third of the total production of approximately 15 million tonnes per year. It may also interest readers to know that we consume about one million tonnes every month, and export between 1-2 million tonnes every year , and the rest of it is used as seed. Over the years, yields and area have stabilized, and farmers are becoming more specialized in their crop production. With regard to estimation the Mahalanobis Centre for Crop Forecasting has been undertaking a satellite survey of onion over the last two years, and the estimation with regard to Rabi and late Kharif onion is well within the range of probability. In addition to this, the Nasik based National Horticulture Research and Development Foundation, a National Level Agency of the NHM also undertakes estimation based on cropped area, weather conditions and yield estimates. The Agmarknet traces arrivals at the major agricultural markets. The Small Farmers Agribusiness consortium has also engaged Agrowatch, a specialized agency to carry its own analysis based on secondary data. The Horticulture Commissioner also seeks periodical reports from state governments about cropped are and expected yields. And though all data-sets report different figures, a broad pattern is eminently discernible.
The first of these is that farmers are not in any rush to dispose off their stocks immediately on harvest. This can be attributed to three factors. The first is the growth of ‘on-farm storage’. These are simple bamboo based structures which ensure that the onion does not touch the ground, and there is sufficient air circulation. These have been promoted both under RKVY and NHM in Maharashtra. The second is the increased coverage of Kisan Credit Card resulting in better liquidity for the farmers. The third factor is the removal of MEP which ensures that the export market is at par with domestic market and there are no sudden spikes or lows.
As a matter of fact the gradual erosion of the MEP regime has ensured greater stability in prices. This columnist is aware of the ‘politics of MEP’ in which every fortnight Nafed would decide upon a figure for MEP- and this always had some people making/losing money in the transactions. Month to month, year to year, there have been no significant variation on account of MEP prices and the system seems to have stabilized.
Does it therefore imply that the country is ready for the futures market for onion? But before that, a little background to the futures trade and the Forward markets Commission. In so far as the legal status on onion futures is concerned, the Forward markets Commission has allowed the same from April 13, 2006, though it has not been launched as both the exchanges – NCDEX and MCX want to stay away from this political sensitive commodity. Though futures are meant for price discovery –it also affords an opportunity to speculators, and therefore the volatility is much higher than in the case of spot markets. This will bring in many more players into the onion trade, which may not be bad in it. Perhaps the civil supplies corporations/consumer /marketing federations of state governments could also take positions to ease the supply of onions in the crucial October-December period , which coincides with festivals , and also marks the end of the Rabi onion stock.
A major role will have to be played by farmer’s co-operatives and FPCs. While individual farmers will find it difficult to access the economies of scale and scope, these institutions can play an important role on this regard. This, coupled with a network of WDRA registered cold storages will go a long way in making transactions in onion clear and transparent. In general, AgriMatters is ‘cautiously optimistic’ about the maturity of this country’s markets to handle the futures in onion, in much the same way as the abolition of MEP. Also, the introduction can be done in a gradual, phased manner with maybe, just Lasalgaon Rabi onions, without much hue and cry. One can take a leaf from potato futures which has done quite well, and most of the larger processors and wholesalers are taking advantage of this facility!
If potatoes in a sack can be traded this way – why not a bag of onions?