Why have onion prices dropped over the last three weeks?
On December 8, the central government banned onion exports until March 20, 2024. As a result, onion prices fell by more than 60 percent in less than three weeks.
The government stated that the delay in kharif arrival and the quantity of onion exported were factors in its decision to prohibit exports.
The quantity of onions exported remained high from July onwards, not only because there was a global shortage of onions and demand from neighboring Bangladesh was high, but also because of incorrect Indian export policies.
When retail onion prices imposed a 40 percent export duty on August 19 without setting up a floor price on which to impose the duty, traders took advantage of the loophole by under-invoicing to pay lower duties, and the export continued in large volumes due to high global demand for Indian onions.
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Following repeated requests from the trade, the government established a minimum export price (MEP) of $ 800/tonne on October 28, 2023. It did, however, eliminate the 40 percent export duty. Exporters could over-invoice because they did not have to pay taxes.
Indeed, exports increased after kharif onions began to arrive in markets. According to trade experts, India needed both the MEP and the export duty in place at the same time to keep exports open while also controlling export volumes.
Despite continued high export volumes from India’s stored crop, combined with lower and delayed production of the fresh kharif crop, onion prices remained high until the first week of November.
Incorrect estimate of fresh crop arrival
The government’s second reason for the export ban was a delay in the arrival of the kharif crop. The government, on the other hand, failed to notice the daily increasing arrivals of kharif onions.
The daily arrival of kharif onion at the Lasalgaon APMC in Maharashtra had increased from about 9,000 quintals per day in the first few days of December to 15,000 quintals on December 6 and 18,000 quintals on December 7. On December 8, exports were prohibited. Since then, the daily arrival of kharif onions has increased to around 30,000 quintals per day.
Excess of Kharif onion for domestic consumption
The kharif onion is expected to flood domestic markets soon. The arrival of kharif onions in Gujarat, Madhya Pradesh, and Rajasthan has reduced the country’s reliance on Maharashtra for onions. The months of December to February are critical for Indian onion exports. Exports allow the surplus onion crop to leave the country.
Farmers bring the kharif crop to markets immediately after harvesting because it has no shelf life. With daily increases in onion arrivals, exports prohibited, and domestic demand reduced, prices had no choice but to fall. Minimum prices, which had not fallen below ₹ 20/kg until last month, have now dropped to ₹ 2-6/kg at many Maharashtra mandis.
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