Onions, exports and tears

Within 11 days of imposing a ban on the export of onions, the powerful traders lobby forced the government to lift the ban. Succumbing to pressure from the onion traders, who normally cry hoarse in the name of farmers, the speed at which the onion trade made the government to bend backwards is a pointer to the monumental failure to curb food inflation.

For over 4 years now, ever since food inflation has hit the roof, I haven’t seen so much of political activity as I have observed in the last few days. Triggered by protest by Nasik onion traders, who had refused to partake in daily auction to demonstrate their anger against the sudden imposition of exports ban, the NCP chief Madhukar Pichad had first written to Prime Minister Manmohan Singh and the Commerce Minister Anand Sharma. Maharashtra Chief Minister Prithviraj Chavan had deputed his Agriculture Minister Radhakrishna Vikhe-patil and some of his colleagues to meet Finance Minister Pranab Mukherjee and other concerned ministers.

Devinder Sharma in Ground Reality. Here

Year 2008-09
Onion production: 13.56 million tonnes
Fresh onion export: 1.67 million tonnes
Raw onion that is dried and exported: 0.19 million tonnes
Total raw onions feeding into exports: 1.86 milion tonnes or approximately 14 percent of the country's production, which is huge for any single commodity. This naturally makes exporters a very powerful lobby. And when exporter join hands with hoarders (in many cases they are the same), they are unstopable. This is what has happened this year as I found during my tour of APMC mandis earlier this year.

Q. Who wants ban on onion exports?
A. Govt. because it wants it to cool down prices and dried onion exporters as they are unviable if price paid to farmer goes above Rs. 10/kg.

Q. Who don't want a ban on exports?
A. Farmers, hoarders, exporters. The latter two work in tandem while the former plays into their hands with the false hope that s/he would get a higher price. Exporter gains from higher international prices, hoarder from temporary spike in domestic prices, which is why both do not want a ban on exports. Between the two, hoarders gain more as opening up exports gives them a legitimate reason to further jack-up prices by claiming supply constraints. The farmer, as usual, goes back home with barely 2.5 percent of the retail price of his/her produce.

Q. Why does the government ban exports?
A. Because it does not want to act against hoarders. Free market principles does not regard hoarding as illegal and the govt. is following them. On the other hand, the same govt. goes against free market principles and bans exports to increase supply into domestic markets and cool prices because this is politically more palatable and is also easier to enforce.

Q. Does this work in principle?
A. At times it does. The price-crisis period is generally during Sep-Oct and this is when hoarders make a killing. Kharif onion has higher moisture content as compared to Rabi onion and therefore the shelf life is less. Due to this reason exporters also compete against hoarders during this period as they want to ship out their stocks before they spoil.

Q. Why did Pawar open exports this year?
A. One, lobbying by exporters-hoarders lobby. Two, even as I am writing this, farmers in Nasik district are sitting on roadsides with piles of onion which they are unable to sell at anything more than Rs. 2/kg (I have asked a consultant out there to take a few pics and mail them over. Will share them as they arrive); Pawar does not wish to be pelted with onions second time in a row. Politics rather than a non-existent supply-demand mismatch is what dictated the govt.'s hands.

Q. Will farmers now gain since exports have been cleared?
A. Nope. They will still be forced to sell their produce at Rs. 2/kg or marginally higher.

Bhaskar Goswami of New Delhi comments in Ground reality. Here and Here