Falling prices of onion: Can export be the answer?

As the world is in the grips of a severe supply crunch in onion exports, India is facing a paradox of plenty. Although the surplus has severely depressed onion prices, the window of opportunity to export the stock is limited.  

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New Delhi, Feb 28: In the present scenario, many developed nations are struggling to meet their onion demand, prompting a World Bank warning in January 2023. In India, however, high supplies have brought prices so low that some farmers are letting their produce rot. In metropolitan cities, prices of onion are hovering at around Rs. 24 to Rs.28/kg. However, in vegetable Mandis or wholesale market, farmers are even selling their produce at Rs. 1/kg as some of them claim! IBT spoke with Indian onion farmers and exporters to find out more about the situation on the ground.

A worrisome situation for farmers

Onion is a temperate crop but can be grown under a wide range of climatic conditions such as temperate, tropical and subtropical climate. The best performance can be obtained in a mild weather without the extremes of cold and heat and excessive rainfall. However, onion plant is hardy and in the young stage can withstand freezing temperature also. But the shelf life of onions is only at around 6-8 months. This makes the current situation of oversupply tricky for producers.

Rajendra Sharma, a trader of Azadpur Mandi and President of the Onion Merchant Association, spoke to IBT and explained the challenging scenario.

“In 2022, the unprecedented harsh (heat) weather destroyed crops, so the farmers sowed extra onion crops just to mitigate a similar scenario that may occur in 2023. However, the rainfall in the end of 2022 was a blessing to the farmers and the onion crop yield turned out to be bountiful.”

He went on the explain that the current harvest or late kharif season onion crops cannot be stored for a long period and the next harvesting period will begin by the end of March. The new harvest of crops will have longer shelf life and can be stored for up to 6 months. The current batch of crops was harvested on time and produced excess output due to increased sowing by the farmers.

Production versus Demand

Demand for onions in the domestic market has dipped in both growing and non-growing states. The excessive production of onion, though a boon for exporters and consumers, has burdened farmers with little or no profit. You can imagine that on one hand, in Pakistan, prices of onion are skyrocketing to Rs. 250/kg, whereas in India, farmers in Nashik are forced to sell their onion harvests for as low as Rs. 1/kg.

The other factor for early harvest of the late kharif crop is the sudden rise in heat, which has forced farmers to cultivate onions. Early kharif crops need to be sold within 8 days of harvest and have a short shelf life. In metropolitan cities such as Delhi and Mumbai, prices of onion are hovering at around Rs. 24 to Rs. 28 per kg. With the abundance of onion in India, farmers are urging the government to either increase the exports or provide subsidies to the distressed farmers.

Onion exports doubled in 2022

The Central government has said that it has not restricted or prohibited the export of onions, pointing out that US$ 523.8 million worth of onions were exported during April-December 2022.

The extant export policy of onions is ‘free’, it has said, adding that only the export of onion seed is ‘restricted’ and that too is permitted under authorisation from the Directorate General of Foreign Trade (DGFT), according to a statement by the Commerce ministry.

DGFT, in its notification issued on December 28, 2020, has amended the export policy, bringing onion (of all varieties) in cut, sliced or broken in powder form, and Bangalore Rose onions and Krishnapuram onions excluding cut, sliced or broken in powder form from ‘prohibited’ to ‘free’ category.

As per the information provided by the Ministry of Commerce & Industry, onion exports have nearly doubled on a YoY basis in December 2022. Onion exports grew by 99.73% YoY to reach 202,161.85 kg in December 2022.

The biggest export markets for Indian onion during April-December 2022 were Bangladesh, Malaysia and the United Arab Emirates, each purchasing onions worth US$ 89 million, US$ 78.4 million and US$ 60.3 million respectively. While there is decline in exports to Bangladesh by 27.8% YoY, there was a growth of 66.98% and 97.62% in onion exports to Malaysia and UAE respectively during the same period.

Challenges with export of onions

While the global community is reeling under the dearth of onions, India’s increase in exports might not be the answer to its farmers’ woes. Onion exporter Naveen Nathrani explained that while the exports of onions have increased by 20-30%, it is unlikely for the figures to go up any further.

“Our onion exports to Malaysia and the Middle East have grown by an overwhelming extent. But it is unlikely that the low prices will lead to higher demand in the international market. The quality grade of the onions might not meet international standards of EU or the US,” he said.

Meanwhile, Rajendra Sharma, President of the Onion Merchant Association, told IBT that exporting onions to the neighbouring countries might ease off the burden of Indian farmers. As the late kharif season onions have a shorter shelf life, India can export it to border countries, depending upon the global demand.