Onion Prices : A Political Challenge : WILL UPA2 BE REDUCED TO TEARS?

Experts say the rise in onion prices together with high food inflation could affect the electoral prospects of the UPA. “The Government is already unpopular … the onion price rise may be the last straw that breaks the camel’s back.”


will-upa2-be-reduced-to-teaThe price of onions, an item of mass consumption and hence politically sensitive, surged recently. India is the world’s second largest producer of onions after China, and onion is the second largest consumed vegetable in India after potato.
A similar spurt in prices in 1998 hurt the electoral prospects of the Bharatiya Janata Party (BJP) in Delhi state. The rise in onion prices will compound political problems faced by the Congress-led UPA coalition at the Centre, especially in managing inflation, said Bidyut Chakrabarty, professor of political science at Delhi University.
poor, who strongly influence the electoral outcome,” “The Government does not seem to be having control over the prices of essential commodities now.” This has also served as a reminder of the inability of the Congress-led United Progressive Alliance (UPA) Government to contain inflationary pressures. “It is likely to disrupt Government, because it affects the poorest of the Chakrabarty said.
Though the Government maintains the price increase is “seasonal” and will drop shortly, political experts said the increase in the price of onions together with current levels of high food inflation could affect the electoral prospects of the ruling party, which is preparing to bid for a record third consecutive term in the next general election.
Even if and after prices stabilise, a Competition Commission of India (CCI) study will be a major cause for concern. The CCI report has revealed that there are ‘Clear imperfections in the onion market and cartels exist’.
According to the report, market structure of onion is unilaterally dictated by the traders, not farmers. The country’s onion market, dictated by traders, has clear imperfections including cartelisation and hoarding that impacts price of the agricultural commodity, the Competition Commission study has said.

“Most of trading is in the hands of commission agents and traders. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of the farmers to make any dent in onion trading,” the Competition Commission of India (CCI) report noted.

There are “clear imperfections in the onion markets and presence of interested cartels”, it said. Bangalore-based Institute for Social and Economic Change conducted the study for fair trade regulator  Competition Commission of India (CCI). The report, which looked at competitiveness in major onion markets of Maharashtra and Karnataka, was submitted to the regulator in December. “Results of seasonal indices, correlations, daily, monthly arrivals their prices etc, indicated existence of anti-competitive elements in the onion markets. “A few big traders having well connected networks with market intermediaries in other markets seem to play a major role in hoarding for expected high prices,” said the findings, released recently.
According to the report, market structure of onion is unilaterally dictated by the traders, not farmers. Minimal role of farmers in price discovery due to low size of average farm holdings – 1.15 to 1.3 acre, unfavourable weather conditions and price risk are cited as major reasons for the situation. “Most of trading is in the hands of commission agents and traders. Lack of trading expertise, market knowledge and risk bearing capacity has prevented most of the farmers to make any dent in onion trading,” it noted.
The report stressed that changes in onion prices have a huge impact on the food security, farmer and consumer welfare. “Factors like significant marketing costs, lack of market infrastructure, control of trade in the hands of few traders, restricting entry for new traders, often strikes by market functionaries, etc. can also be responsible for high prices of onion,” it said. During the agricultural year 2011-12, onion was grown in an area of 1.04 million hectares with a production of 15.75 million tonnes. The study has also suggested various measures to improve the overall functioning of onion markets.
“To avoid collusion between traders, involvement of Agriculture Produce Market Committee (APMC) officials in the auctioning process should be mandatory. Besides, co-operative marketing societies must be encouraged so as to prevent collusion amongst traders,” it said. “Onion is one of the most market sensitive commodities that creates ripples in the trade as also political circles.
“Its significant position in the diets across all income groups and an important ingredient in many Indian recipe causes wide ranging effects of any significant price change,” the report said.

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