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Tackling the political issue of onion prices -Milind Murugkar
-Livemint.com

No matter which party is ruling, onion farmers will always be the victims of a biased state policy

Onion prices have plummeted and onion producers in Maharashtra are in distress. Union minister Nitin Gadkari has appealed to them to diversify their production to avoid a repeat of the situation.

Such appeals are unfair. For one, the minister was silent when his government brought down onion prices by restricting exports, and two, thanks to scanty irrigation, onion is the only cash crop option available for them.

Thus, the unrest among onion producers has a strong moral dimension: “if the government deprives us of the international prices through export restriction, it is duty bound to help us when the prices fall”.

Farmers have also not forgotten the promise made by Narendra Modi—when he was the prime ministerial candidate—of support prices that ensure 50% profit.

Thus, no matter which party is ruling, onion farmers will always be the victims of a biased state policy. The government will selectively intervene to protect the consumer at the cost of the farmer.

After all, producers of onion are only a few, while the consumers’ unrest over rise in prices has a national impact and can even rattle the government of the day.

So, is there a way out of this chronic political problem? At the heart of this issue lies the wide swing in prices. Prices per kilogramme of onion can swing from Rs5 to Rs25. The stabilization of these prices would reduce the need to curb exports and can also avoid a steep fall in prices, causing farmers’ unrest.

Why do onion prices swing so much? In the parlance of economics, the demand of onions is termed as inelastic. It means the price of onion has little effect on its consumption. Fall in their prices doesn’t raise their consumption significantly and the price rise causes only a small decrease in consumption. So, the price is primarily decided by the supply.

The demand and price relation is such that even a small increase in production causes a steep fall in prices and vice versa. One per cent change in production can cause three to 10 times that much change in prices.

So, the solution to such price swings lies in stabilizing the small fluctuations in supply.

This begs the question that why should controlling the price swings be an unattainable task?

The question seems even starker in the context of the political costs involved. In fact, there is a reason to believe that a little political will on part of the Devendra Fadnavis government in Maharashtra can tackle this national political problem.

Onion requires limited but timely irrigation. It is a monsoon (kharif) and a post-monsoon (rabi) crop. When grown only on rainwater, it faces the risk of a steep fall in its yield with the variation in rainfall. So, generally farmers rely on other sources, such as dug well or bore well.

But farmers who lack such facilities also take the risk and cultivate onions. It is the only cash crop option they have. The input cost is much higher than other traditional foodgrain crops. But then, the profits can also be high.

So, this is a gamble for them. In fact, it is a gamble even for the farmers with irrigation facilities, as any variation in monsoon affects groundwater availability. Thus, irrigation based on watershed development holds the key to price stabilization. Sadly though, this issue hasn’t found a place in the discourse on onion prices.

It could be argued that a generic issue such as irrigation cannot be emphasized only in case of onion. However, that would be missing the point. It is important to note that nearly one-third of the total production is concentrated in a few districts of Maharashtra. And a small investment in irrigation in these districts can solve a major political problem that the country faces.

It will also have other “co-benefits”. Per acre yield can almost be doubled by providing small but assured irrigation.

Traders could invest in cold storages and ensure price stabilization. But the technology is capital-intensive and such investment becomes risky given the government’s frequent export bans. The political inevitability of such policies underscores the importance of irrigation.

Invoking the issue of irrigation might seem odd now when onions are being sold at throwaway prices. But that would be a very myopic view. We need to look at the vicious cycle of variation in monsoon causing a fall in production.

Demand being inelastic, even a small dip in production will cause a steep rise in prices. Farmers respond to this price signal and spread the area under onion cultivation. And even a small increase in production causes a steep fall in prices.

Given the fact that onion farming is concentrated in just a few districts of Maharashtra, chief minister Fadanvis could achieve this during his present tenure and reap the benefits of it.

Milind Murugkar writes on contemporary economic and political issues.