By the time you read this, a kg of onions may be selling at just Rs 80 to 100, as farmers take their not-fully-ripe crop into markets to take advantage of high prices. On 10 December this year, that same kg sold for Rs 250 in Chittoor in Andhra Pradesh and Madurai in Tamil Nadu. An article from The Hindu says,
‘The price of the third grade variety, which is on the verge of rotting, touched the Rs 200-mark.’
Rs 200 for a kg of almost-rotten onions — wow! Last year, around this time, the same kg sold for just a rupee at one of the main wholesale markets of India.
Volatility, thy name is onion.
The problem begins with seasonality. Indians consume onions every day — in curries, in salads, as accompaniments. Meaning, there is year-round demand.
Supply, however, is seasonal. Onions come from primarily from three states — Maharashtra, Madhya Pradesh and Karnataka — who, between them, provide two-thirds of India’s onion crop. Most of Maharashtra, the largest supplier of onions, follows the rabi, or winter, cycle for onions, where the harvests begin to hit the markets in April. Madhya Pradesh’s crop follows the same pattern. But wily Madhya Pradesh farmers are beginning to shift their crop to the kharif season where rainfall permits, to take advantage of higher prices in October and November.
Predictably, prices in India begin to crash in mid-March ahead of arrivals, and begin to rise again as storage is exhausted — stock either sold or rotten. Prices peak post-monsoon and fall when and if Karnataka’s kharif (summer) onions come to the rescue in December/January (see Figure 1).
So, why the crisis this year?
Poor prices. 2018.
In 2018, in the key onion growing markets of Lasalgaon, Pimpalgaon, and Solarpur, onion prices in September to November in 2018 were the lowest in five years. In December 2018, wholesale market prices at Lasalgaon, hit just Rs 1 per kg. This is when farmers decide which crop to sow. When growing onions costs about Rs 9-10 per kg, not growing onions was a no-brainer. Onion acreage in the winter season thus probably came down substantially as farmers planted a smaller rabi crop. Now, this rabi crop is stored from April to November, when the first onions from the summer crop begin to arrive in the markets. If all goes well, that is.
Weather anomalies. 2019.
But things didn't go well.
Consider the price of onions over the past two decades:
The increased volatility of this decade owes much to water — too much or too little. Onion farmers tend to be small, often managing less than two hectares. This is an important fact to keep in mind while solutioning. Small farmers tend to have low clout in local markets, get their credit from informal sources and do not have access to the best seeds, irrigation or growing practices. Which means, if rains come late, as they did this summer monsoon, these farmers do not have access to drip irrigation which would have protected them from such vagaries of the weather. Instead, these farmers delayed their sowing. This happened in some of the key summer growing districts of Karnataka this year (see Figure 2), which meant the needed price relief in November did not come.
But the biggest blow came from flooding. The onion has a shallow root system and the crop is highly sensitive to flooding. The heavy rains and consequent flooding this year in key districts of Maharashtra and Karnataka, just as the onion crop was near to harvest sent prices upwards. By some accounts, a third of Maharashtra’s cultivated land fell prey to unseasonal flooding. A part of the stored winter onions fell prey to the rising waters or the damp as well, further lowering sellable stock.
Consider the rainfall graph of Dharwad, an important district for summer onions in Karnataka. The abnormal rain in September and October probably lowered yields substantially. Constant rain and flooding makes harvest and transport of a perishable crop harder, putting an upward pressure on prices. As the climate warms, one of the more robust predictions is the rise of extreme events — high intensity rainfall — which often leads to flooding. Meaning this pattern is one we should prepare for.
However, as prices rise, it’s a good time to trade. India exports about 7 percent of its crop, mainly in the months of November/December as the gap between rabi-storage and kharif-arrival wedges up prices (see Figure 4).
India is the second largest producer of onions in the world, producing nearly a quarter of the world’s crop. It’s also amongst the least productive, with a yield just 1/4th of America’s yield, and a fifth less than China. If India’s yields rose, and water-issues managed, farmers would be burning their crops because prices would be too low. So, our enemy, if you will, is volatility. That is what needs to be addressed.
As a spinning mill, we buy cotton, which accounts for half our selling price. As such, understanding cotton crop development across the world from sowing intentions to harvest conditions is critical. There are several services available today for this. For a crop as important as onions are purported to be, it’s shameful that we do not have a transparent equivalent. Today, technologies such as drones, and the ubiquitous presence of mobile phones make it child’s play to understand farmer’s sowing intentions for the rabi and kharif crops, as well as early crop development. This will make it easy to book necessary imports or exports ahead of time and lessen volatility.
Better water management
Volatile water is a defining feature of climate change. It’s going to get worse, so we need figure out how to manage it better.
Too little: Adoption of drip irrigation can make short work of delayed rainfall. But drips require both a standing source of water, which is the stuff of dreams for the small onion-growing farmers. Besides, drips are expensive (thought subsidised), require labour and expertise to maintain, all of which are hard for small farmers. However, perhaps growing summer onions in places where a standing source of water (even groundwater) is a possibility that has been talked about — Punjab is one potential candidate. Onions take up far less water than paddy.
Too much: Flooding may well become a fact of onion-life. Planting on broad bed furrow (BBF) instead of traditional flat beds may reduce losses from flooding in kharif season. Greenhouses may help shield the crop from intense rainfall. “Today, greenhouses are too expensive for an inexpensive crop like onions”, says Karthik Jayaraman, co-founder of Waycool, an Agri supply chain company that sells about 800-900 tonnes of onions every month. But that may well change as the climate warms.
Better (cold) Storage
A large part of India’s winter crop rots away. A warmer climate will only make the rotting worse. As Ashok Gulati and Harsh Wardhan write, ‘Storages at farm level suffer losses of about 20-25 percent, which can be brought down to 5-10 percent with modern cold storages. But cold stores will cost about Rs 1.5/kg/month. These stored onions can then be released during August through first half of October, before the kharif harvest starts arriving.’
Between April to August, cold storage would add Rs 7.5 to 10.5 per kg of onions. Urban housewives would gladly pay this premium rather than the far higher price they pay today. However, this suggestion assumes modern cold storages are accessible by farmers in adequate quantities. This is not true. Maharashtra’s winter crop alone was 4.5 times the total available cold storage (working or not) in 2017. India desperately needs accessible cold storage. Karthik says onions may work well in aerated cold storage — where onions would be stored at colder temperature, but would not retain moisture. But that requires modifying our available storage. In terms of investment, there can be few better places for money to go.
If we do all this well, we will curtail spikes. But what about too low prices?
Influencing crop choice
At the heart of this problem is the misalignment of risk and reward. In well-functioning financial markets, he who takes the greater risk, gets the greater reward. In onions, that is broken. The farmer takes the risk — of climate, of water, of market — yet shares very little of the reward. I wish that an MSP (Minimum support price) coupled with government procurement would work for onions. It might if we were talking Punjab, but we are not. Traders dominate the profit pool in onions — they extend credit to farmers, cornering the produce when arrivals come and prices fall, and benefit from price spikes. As such, an MSP would benefit them, not the farmer.
How else to align risk and reward? One way is via the Farmer Producer Organisations or Agritech startups that reduce layers in the supply chain and link small farmers with storage and credit and help India manage her surplus by engaging meaningfully and continually with global markets. There is emerging start-up interest here. Waycool or Ergos are two examples. Waycool helps farmers improve yield by following best practises and improves farmer cash flow by paying farmers cash when they invoice Waycool. Given that marginal cost of capital of the small farmer hovers upwards of 50 percent, that is a big deal. They also improve farmer income by trimming layers in the supply chain. Ergos works with cereals, where by adopting better storage practices, it brings down storage losses from 25 percent to less than 5 percent. They also help farmers access far cheaper formal credit by collateralising their stored crop for formal credit, bringing transparency that lenders sorely need. They also linking farmers to buyers.
Another is the Amul Model. The Farmer Producer Organisation of today may play many of the roles Amul played in helping out small dairy farmers with market access and steady demand. When yields rose, Amul helped absorb the excess through value added products like butter and dried milk powder, which has an added advantage of being easier to store.
Market access is necessary to align risk and reward. An MSP/government procurement scheme will not achieve that. FPOs and start-ups might, and thus hold one key to stabilising the volatility in onion prices.
The writer is the founder of the Sundaram Climate Institute, cleantech angel investor and author of The Climate Solution — India's Climate Crisis and What We Can Do About It published by Hachette. Follow her work on her website; on Twitter; or write to her at email@example.com.
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Updated Date: Dec 16, 2019 09:38:54 IST