The politics of onion management.
By Rajiv Theodore
NEW DELHI: It is known for making the cooks weep, but in India the humble onion, the key ingredient in any dish, cutting across dining spaces from palaces and banquets to hutments and slums, has made the government sob too.
With prices hovering around a whopping Rs. 80 a kilo, it came as one of the last straws in the back of the proverbial camel as millions in the country already reeling under steep rise in food prices accentuated by inflation, are fighting tears of despair.
The skyrocketing price of onions is hitting all and sundry below the belt. Gurpreet Singh Walia who sells automobile tires is offering free onions with his merchandise.
“This is my way of selling during these difficult times, it’s my way of showing a symbolic protest against a government that has been a mute spectator during the (onion) crisis,’’ Walia said in an interview. “A great leveler, the spiraling prices for onions is now equal to the price of beer in the capital!’’ he quipped.
According to the latest wholesale price index (WPI) numbers released on Wednesday, onion prices rose 144% in July over the year-ago period with prices ranging from Rs. 50 and Rs. 80 a kilo. It has doubled what they were a year ago.
The runaway prices have moved the government from its slumber because they realize that it was over the prices of onions (Rs. 40 at that time) that the Bharatiya Janata Party (BJP) lost state elections in Delhi in 1998. Politicians seem to be demanding everything ranging from a ban on exports to special subsidized shops in urban hubs but the critical part of going into the core of the problem remains –how to tame such volatility in India’s commodity markets.
Let us shift the focus to a theatre called Lasalgaon in Nashik district of Maharashtra, (220 km. north-east of Mumbai), Asia’s biggest onion market and a clutch of traders who control it. Prices of this vegetable across the country move along with prices in Lasalgaon.
“It is wrong to paint us as some kind of mafia that drives up prices,” says Nandakumar Daga, a member of the Lasalgaon APMC, which regulates the mandi, and head of the traders association, who rubbishes the ISEC report. “Seasonal variations in output cause volatility in all markets.”
However, the truth is that these agriculture produce market committees (APMCs), known as mandis, was created to protect the interest of farmers and the so-called representatives of the farmers on these APMCs enjoy huge political patronage.
A team led by agricultural economist P.G. Chengappa pinned down collusion among APMC traders as the key factor behind the onion price rise, though it did not name any specific trading firm. It is also seen that a network of a select traders control the onion supply chain who also block new entrants. This creates a monopolistic situation where middlemen enjoy a fat margin, widening the gap between what a farmer earns and what a consumer pays. Onions at the Lasalgaon market are being sold at Rs.10, but cost 70% higher in Mumbai.
In the absence of genuine competition at the mandi, prices are distorted. Lack of viable alternatives to the APMCs limit investments and the numerous transaction charges distort prices and leads to high wastage across the supply chain. These factors have played a crucial role in pushing up onion prices rapidly over the past decade despite a threefold increase in production. The APMC laws have served to protect the interests of trader-cartels rather than those of farmers and consumers, according to a Nashik activist, Girdhar Patil.
“The government has no moral right to intervene in the market as last year when prices came down to Rs.4 per kg in the wholesale market, the government did not come forward to save farmers. Why should it intervene now and prevent farmers from making an extra buck?” Maharashtra’s agriculture minister Radakrishna Vikhe Patil said after the prices shot up. But in reality it is not the farmers who are real beneficiaries, but the cartels that skim the cream.
Introduced during the British Raj in the late 1930s to reform agricultural markets, the APMC Act was strengthened after the Bengal famine of 1942 to break the stranglehold of village moneylenders, and to encourage higher production by facilitating competitive markets. “Meant to reform the system, the APMC Act created deformities in the supply chain,” says Patil.
Mumbai-based anthropologist Mekhala Krishnamurthy, who did her research on Madhya Pradesh mandis, brings out interesting facts on how caste networks play a key role across commodities and regions. Traditional intermediaries thrive at the cost of large organized firms, she says.
And as long as the Lasalgaon cartels thrive and resist change and assiduously limit new entrants the flow of tears shall remain unabated.
To contact the author, email to editor@americanbazaaronline.com