Two Steps to Fix the Onion Crisis - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 26 October 2013
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Two Steps to Fix the Onion Crisis A  A  A

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
When it comes to Indian cooking, we cannot do without onions. And so, it is no surprise that the recent spike in the price of onions has everyone worried and angry. And rightly so. What is unfortunate is that we have been through this time and time again. In late 2010, we had an onion price crisis very similar to what is going on now.

There are two reasons for sharp rise in onion prices. The first is unpredictable monsoon rains which affect output. The second is hoarding by sellers in anticipation of higher future prices. It is difficult to tell how much each one is contributing to higher prices, but it is safe to conclude that both are problems that need to be fixed.

The good news is that these problems can be fixed with a reasonable amount of effort and resources. All that is needed is long term investment and planning. For the time being, the government is looking for a short term solution to high prices. But this will not prevent us from having this problem again in the future. We need a long term solution. What can we do?

When it comes to unpredictable monsoon rains, it may appear that there is nothing we can do about it. After all, we can't control rainfall. But we certainly can control what we grow, and how dependent our crops are on rainfall. In India, we have too many crops in dry areas that require high levels of water. This means that we produce onions in areas that are too dry, and as a result heavily dependent on rainfall.

What we need to do instead is to grow crops suited to the local area, so that we are not so dependent on the monsoons. Plenty of developed countries do this, and they do not have this vulnerability to rainfall that we do. And if that means we import more onions from places that have more stable production, then this is just fine.

When it comes to stopping sellers from hoarding onions, all we need to do is create an organized commodity market. We already have one for other agricultural commodities. For example, the NCDEX has a variety of traded agricultural commodities. When commodities are traded on a regulated exchange, pricing is far more transparent. This means that it is nearly impossible for anyone to manipulate the prices of these traded commodities by hoarding. If we can regulate onion trading on an exchange, we will get rid of the hoarding problem.

The fact is that we can do something about the price of onions. By taking simple steps of reducing our reliance on rainfall and regulating onion trading, we can prevent such onion price disasters from taking place in the future.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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10 Responses to "Two Steps to Fix the Onion Crisis"

Goshtasb Jamasbi

Oct 28, 2013

These solutions are very good in paper but .........

Like 

Prem Khamesra

Oct 28, 2013

I think Mr Dossani should restrict himself to derivatives and currency bets, the area where his common sense analysis is wonderful. His prescription for the onion crisis is like a footballer trying to outplay seasoned golfers without having held a golf club ever and telling them how a nice kick would send the golf ball flying right into the hole.

Like 

Alphones

Oct 27, 2013

Dear Assad,
I think, you have missed one more point, that is population. Even if one person eat one per day, India need 1.2 billion onions everyday plus unaccounted population. Do India produce? I don't think so. Farm land is also shrinking. Please don't get surprised. This will be the situation each year during this time.

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Jayaraman

Oct 27, 2013

I fully endorse your views. i would like to add two more points as remedial measures and hold price line at reasonable level. 1. create cold storage facility under a ppp model. This will enable storage and ensure that the onion is released on regulated basis to match demand and supply. Even import and store when the import is cheap. 2. Avoid market intermediaries and let the organised market players such as Big Bazar, Reliance fresh etc deal with the farmers directly. Even today organised retailers are able to make the vegetable available at a comparatively reasonable rate!!

Like 

R GURURAJA RAO

Oct 27, 2013

We have to adopt to Indian cooking without onion, at least to tide over the situation.

Spread the commodity across from perishable to non-perishable areas



Like 

ajay k gupta

Oct 27, 2013

Any correct action need honest will to take action, which our present govt and administration is lacking.

Like 

C K Vaidya

Oct 27, 2013

I am sorry to make a caustic remark that you don't seem to know your onions. Onions are already covered by agri markets act which can not stop its hoarding.
Since onions are perishable, the solution lies in (minimum)processing them just like tomatoes or peas. Cost of processing and subsequent storage can be borne by the governments instead of subsiding onion when the prices rise and compensating the farmers when prices fall below cost of production. Food processing should be seen as essential part of 'food security' and should receive encouragement rather being treated as a rich man's toy.

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harish joshi

Oct 27, 2013

In my opinion, a very basic point has been missed out. That is allowing export of commodity , when there is shortage in the country. India is a vast country , with very high population and inflexible demand for most of the food items.The basic scenario of supply / demand has been completely mis-understood by the Govt , of course due to political pressures from certain powerful lobbies of farmers and middle men.

Like 

Jitendra Amin

Oct 27, 2013

Good attempt for marketing your product.
The real need now is to give all types of support and
help to unorganised sector of agriculture. Your write up is useless unless you do active work for millions of poor
farmers.

Like 

Anil Kumar

Oct 26, 2013

If Govt can buy so much Wheat that it eventually rots, what prevents it from buying Onions and stocking them in cold sotrages to curb hoarding? Its just corruption.

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