Rising prices of onion: The legal angle

Reading time: 6-8 minutes.

The onions have brought tears in the eyes of its consumers quite literally in past months with its soaring prices. Being staple ingredient in Indian recipes, any fluctuation in its prices has an immense impact on the food security, farmer and consumer welfare.

An increase in price of onion disturbs the consumer’s food consumption budget, while a decrease in onion prices below the cost of cultivation affects the producer.

The government is tackling the situation by setting its minimum export price (MEP) at $850 FOB (free on board) per tonne. The government had created 56,000 tonnes of buffer stock. It has also settled that retail price of onion at Safal would be Rs 23.90 per kg (for Grade A variety) as available on August 21 as Safal will continue to receive onions from the government buffer at that rate. Nafed and NCCF were also guided to retail onions at prices similar to those of Safal via their outlets and mobile vans.

The state-owned MMTC (Metals and Minerals Trading Corporation of India) had floated tenders for importing 2,000 tonnes of onions from Pakistan, Egypt, China, Afghanistan and other countries of origin. The Centre will consider imposing stock limit in future on onion traders if retail prices continue to remain high even after exhausting the buffer stock.

Background of this issue:

Prices fluctuate based on the supply from the three crop seasons in which onion is grown — April-August (rabi crop that accounts for 60% of production), October-December (early kharif crop that accounts for 20%) and January-March (late kharif crop that accounts for another 20%).Farmers mostly store their onion produce in moisture-proof and dust-proof structures which is released steadily depending on the price of onion in the market, which facilitate constant supply.

 The heat wave in May followed by heavy rains this year left only 50 per cent of the crop. The cultivation of onion in the rabi crop cycle this year decreased in Maharashtra from 3.54 lakh hectares in 2017-18 to 2.66 lakh hectares in 2018-19 and Karnataka received heavy rainfall during the harvest period of the onion grown in kharif season. Besides this, new batch of kharif onion crop grown in Maharashtra would not hit the market before the end of October this year. Until then, the stored rabi crop will be supplied to the market.

Relation with Essential Commodities Act, 1955:

The Essential Commodities Act caters for the regulation and control of production, distribution and pricing of commodities, which are declared as essential for maintaining or increasing supplies or for securing their equitable distribution and availability at fair prices.

Onions were eliminated from the Act in 2004 but government by passing an order brought onions and potatoes in an ambit of Essential Commodities Act in 2014. The objective is to enable states to undertake de-hoarding operations by fixing stock limits in respect of essential commodities in connection of their rising prices. Each state has liberty to set its own stock limit, by taking into consideration their local demand-supply situation.

Legal principles and customs involved:

It is custom to stock the commodities for supplying the same for non-seasonal period but the traders end up exceeding the quantum of stocking which results in hoarding. The centre and state under notification from centre has power to put cap on stock holding limits for period when there is shortage of supply due to price hike preventing anybody trading or dealing in a commodity stockpiling it beyond a certain quantity.

Once the state imposes limit on stocking, traders have to immediately sell into the market any excess stock than allowed which leads to improving supplies and bringing down prices. State agencies conduct raids to check compilation with the law by shopkeepers and traders and the defaulters are punished. The excess stocks are auctioned or sold through fair price shops.

Implications and public reaction to the issue:

The whole situation has potentially impacted public demands and usage. A limit of stocking 10 tonnes on retail traders and 50 tonnes on wholesale traders has affected demand at mandis after onion has been included as essential commodity under Essential Commodities Act. The producers are unable to dispose off their produce at competitive prices and its quality is deteriorating every day. Imposition of ban on exports and withdrawal of all benefits has impacted farmers even more.

That is because the country produces about 23.5 million tonnes of onion a year, but consumes only about 14 million. So, export is necessary to maintain prices and ensure that farmers get a profit. Farmers are unhappy over the government’s price control measures, calling it appeasement of urban voters and consumers. Further they also feel that the government intervenes only when prices rise, but did not show up when onions were sold at ₹1/kg.  A common man is left with no other option but to tighten other expenses to savour the onion. 

Conclusion: Way forward

With the sky rocketing prices of essential commodity like onion, it is high time that government should not only handle the present situation but also devise plans for future to prevent reoccurrence of the same situation since this issue has time and again come into limelight.

The government can check the price rise by imposing minimum export price (MEP) instead of banning exports altogether to keep eye on unrestricted exports. Simple techniques like keeping a neck of about three inches while harvesting onions reduces chances of bacterial infection of the bulb. Further, the storage wastage must be reduced as it amounts to 35%-40% loss of onions in India. Besides Central agency like NAFED, state level agencies should also be involved in stock holding to hold larger volume and to have larger coverage of stabilisation.  

Public agency like Directorate of Economics and Statistics in Ministry of Agriculture and farmers Welfare should continuously monitor crop area, condition and prices to be aware of the current and changing market and further to help government, it could develop reliable price forecast model and come with early warning system which would enable government to take appropriate measures in advance like procurement, regulating export, arranging imports and putting check on hoardings.

-This article is brought to you in collaboration with Shivangi Bansal from Panjab University, Chandigarh.

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