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India: Modi government’s onion export ban a ‘knee-jerk’ reaction

  • September 30, 2019

Onion — a common ingredient in Indian cooking — is arguably the most politically sensitive vegetable in India. A spike in onion prices is known to have brought down governments in the past. It’s no surprise, therefore, that the Indian government is rushing to limit the political fallout of the recent hike in onion prices just ahead of crucial state elections, including in the key onion-producing state of Maharashtra.

India, which is one of the world’s top onion exporters, has banned exports of the vegetable and has imposed restrictions on stocks traders can maintain in a bid to bring down the prices of the key Indian kitchen staple.

Onion prices, which have been steadily rising this year, have doubled in recent weeks in several cities, largely due to excessive rainfall in onion-growing areas. The deluge has added pressure on supplies that were already reeling from last year’s drought and a delay in monsoon rains this year.  Retail onion prices are hovering around 60-80 rupees (around €1, $1.1) per kilogram, less than a year after a plunge in onion prices to as low as one rupee per kilogram in some places prompted farmer protests.

“This is a sheer knee-jerk reaction from the government because the percentage of onion exported to total production is very small, around 10%-12%,” G Chandrashekhar, an expert on agribusiness, told DW. “The government in my opinion just wants to show that it’s taking action.”

A familiar cycle

The government’s latest move is part of what has now become a familiar cycle — onion prices go through the roof due to some weather-related event, the government responds by imposing restrictions on exports and a clampdown on hoarders, prices stabilize mainly helped by the advent of new crop, excess supply causes prices to dive southward, prompting farmers to seek support from the government, the authorities ease restrictions on exports, the prices go up before shooting up again due to a weather-related event and the cycle is repeated.

Experts say that the government must break this cycle and not resort to “irrational” measures such as an export ban to deal with supply shocks. They stress that the authorities should instead focus on creating modern storage and processing facilities.

  • Thousands of Indian farmers demand government support

    A sea of red flags

    The farmers, wearing red caps and carrying red flags, arrived in the city following a six-day trek from Nashik, situated 165 kilometers (103 miles) north of Mumbai. The farmers, the bulk of them impoverished, plan to surround the state legislature of the western state of Maharashtra in Mumbai. Many had walked barefoot in the already soaring March temperatures.

  • Thousands of Indian farmers demand government support

    Demanding government support

    The farmers want the government to ensure they earn at least one-and-a-half times the cost they incur in producing their crops. They are also demanding that the government waives all farm loans. Many of the protesters are tribespeople who have farmed for generations on land they don’t own but are demanding recognition of ownership.

  • Thousands of Indian farmers demand government support

    Working out a solution

    The Maharashtra government has said it is willing to consider the demands and is working to find a solution. Last year, Maharashtra Chief Minister Devendra Fadnavis said his government would write off loans to farmers estimated to be worth around 305 billion rupees ($4.75 billion, €3.86 billion).

  • Thousands of Indian farmers demand government support

    Agriculture in crisis

    Maharashtra is one of India’s most important agricultural states. In recent years, it has suffered disappointing rains and severe drought which led to crop failures. More than 2,500 farmers killed themselves in the state in 2017, according to official figures. But the problems are not limited to Maharashtra.

  • Thousands of Indian farmers demand government support

    Rising discontent

    It has been a season of agrarian discontent in India and farmers across various states have regularly been holding demonstrations over the past several months pressing the government to offer them more help. The situation exposes the precarious state in which the country’s struggling farmers and impoverished landless agricultural laborers find themselves in.

  • Thousands of Indian farmers demand government support

    Poor earnings

    Many farmers are struggling with high debts and poor earnings from lower produce prices. Experts say many farm commodities are trading below support prices set by the authorities, because the government only commits serious sums to buying wheat and rice, but not other crops. 

  • Thousands of Indian farmers demand government support

    A quick fix?

    Analysts say loan waivers amount to quick fixes and they cannot tackle the structural flaws in farm policies, which have encouraged higher production of crops previously in short supply but offered scant protection on prices.

  • Thousands of Indian farmers demand government support

    A major challenge

    The outburst of discontent poses a challenge for Prime Minister Narendra Modi, who has promised to double farmers’ incomes over the next five years. There is a risk that the protests could spread and intensify if no effective measures were put in place to resolve the issues.

  • Thousands of Indian farmers demand government support

    Dependent on agriculture

    Two-thirds of India’s population of 1.3 billion depends on farming for their livelihood, but agriculture makes up just around 14 percent of the nation’s total economic output. Despite growing migration to cities in the past two decades, over half of the population still lives in rural areas.

    Author: Srinivas Mazumdaru

“During times of surplus, the government is so eager to spend millions of rupees to support farmers and buy from them. The amount of money the government has spent on propping the prices up could have been spent on creating the infrastructure for storage,” Chandrashekhar said. “But the government is not so keen to solve the problem. Unfortunately, they will not be able to score political points if they solve the problem.” 

Chandrashekhar also suggests that the government should focus on the production of value-added goods such as dehydrated onions by helping set up processing plants in onion-growing areas.

‘Anti-farmer’ move

The export ban is the latest step by the Indian government to reduce the pain of the consumers.

In June, it withdrew 10% export incentives on the vegetable to keep prices in check. Earlier this month, New Delhi moved to curb onion shipments by imposing a minimum export price of $850 per ton — a price that exporters said was too high and would prompt their major importers such as Bangladesh, the United Arab Emirates and Malaysia to turn to China and other sellers.

Critics argue that the government’s measures to artificially suppress prices hurt the onion farmers who are constantly fleeced by the middlemen.

“Banning exports is an anti-farmer move. Why should farmers be deprived of getting higher prices,” Chandrashekhar said.

Tremors abroad

The tremors of the ban are being felt in neighboring Bangladesh, where onion prices skyrocketed within hours of the decision.

Onion prices jumped in wholesale markets across the country, The Daily Star newspaper reported, adding that traders feared that prices could climb further.

Bangladesh bought nearly $60 million worth of the vegetable — about 60% of its total onion imports — from India in 2017.

The prices of Indian onions in the UAE, another major importer, are also beginning to rise, the Gulf News reported. Indian onions are popular among South-Asian expats in the country.

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