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Supply shock triggered by uneven monsoon spurs onion price surge

By, New Delhi
Oct 31, 2023 07:56 AM IST

A fresh supply shock triggered by a deficient monsoon has led to a surge in onion prices, which have more than doubled within a fortnight in several states, as the Union government began releasing stocks from its reserves to cool rates amid high festive season demand

A fresh supply shock triggered by a deficient monsoon has led to a surge in onion prices, which have more than doubled within a fortnight in several states, as the Union government began releasing stocks from its reserves to cool rates amid high festive season demand.

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Most vegetables have gotten expensive again, retailers said, driven by demand from households, eateries, and street food vendors ahead of Diwali, a major festival. The government would continue to sell onions in about 16 cities from its buffer stock to stem the current inflationary spell, an official said.

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In the retail markets of the national capital, average quality onions sold for 80 a kg, up from 60 last week and 30 two weeks ago. The commonly consumed vegetables are sold for similar rates in other cities, such as Chandigarh, Kanpur, and Kolkata. Supply chain intermediaries said rates could spiral further.

A deficient June-September monsoon damaged the kharif of summer onion crops in Maharashtra and Karnataka, two large suppliers, pushing back harvests while stocks from the winter crop have almost been exhausted, driving prices again.

Wholesale rates of the vegetable have dipped in Maharashtra, the largest producer, following measures to curb exports, the consumer affairs ministry, which monitors prices of 22 essential food items, said in a statement.

The Union government had on October 28 imposed curbs on onion exports, setting a minimum export price (MEP) of $800 on overseas shipments. The imposition of MEP has shown an “immediate impact of price correction in Maharashtra markets, where prices recorded a decline of 5% to 9% from the highest price registered during last week”, the government said in a statement.

MEP is a price threshold below which traders cannot sell to global buyers. It is a measure designed to limit cheap exports and boost domestic availability, thereby helping to cool prices.

According to data cited by the consumer affairs ministry, the weighted average price of onion in Maharashtra across all the markets has declined by 4.5%. Retail prices usually come down with a lag.

Supply chain intermediaries however said prices could spiral further as supplies have thinned following a delay in harvesting of the summer-sown crop. “Most vegetables and fruits, such as green leafy items, pumpkins, onions, and even bananas have become quite expensive within a week,” said Alka Agarwal of Shobhit Traders Pvt Ltd, a wholesale farm business in Delhi’s Azadpur market.

Onions had witnessed a price spiral in August and September, when rates had soared to record highs due to extreme weather, prompting the government to sell the item at subsidized rates in several urban centres.

The government on Saturday said it would procure an additional 200,000 tonne of onions for its buffer stock, for which 500,000 tonne had already been bought.

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  • ABOUT THE AUTHOR
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    Zia Haq reports on public policy, economy and agriculture. Particularly interested in development economics and growth theories.

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