Thursday, October 24, 2013

The Onion Price kerfuffle

I briefly looked into the Onion Price kerfuffle and this is what I found.

1. Onion does not come under the Essential Commodities Act 1955 and hence the union and state govts cannot per se stop hoarding or storage by farmers or traders. The Union govt can control export of Onions by increasing the Minimum Export Price (MEP) which it did recently.

2. After a similar inflation in December 2010, the Competition Commission of India asked the Bangalore based Institute for Social and Economic Change (ISEC) to study the Onion markets. The report was published in 2012. It found no smoking gun and hence no quick fixes possible.

3. Maharashtra, Karnataka, MP and Gujarat seem to be the major onion producing states and ISEC study in MH and KA finds collusion between traders, commission agents, wholesalers and some farmers, to control the supply of Onions to maximize their profits.

4. ISEC study's major recommendations are,

a. try and prevent secret biddings (illegal under Regulated Market act) which help some traders to get most of the onion produce,
b. empower APMCs to punish intentional hoarders,
c. break the cartel of commission agents by removing entry barriers.
d. discourage export control using MEP (affects farmers).
e. educate farmers on prices and procure directly from them.