Economic and Political Weekly August 14, 20043684

SUDHIR B

Onion is one of the most importantvegetable crops grown in India.Although onion is grown all over

the country, the major cultivating statesare Andhra Pradesh, Orissa, Bihar, Gujarat,Karnataka, Madhya Pradesh, Maharashtra,Tamil Nadu and Uttar Pradesh. These ninestates account for 90 per cent of both areaand output. In northern India, onion isusually grown in winter (rabi crop). InAndhra Pradesh and Maharashtra it isgrown in the rabi as well as kharif seasons.Thus, onion is cultivated and available fordomestic consumption and exportsthroughout the year. India is a traditionalexporter of fresh onions. However,

exports are allowed only after domesticrequirements have been met, which maybe the cause of fluctuation in exports anddomestic prices from year to year.

In the market system, resources areallocated through the price mechanism,where supply and demand meet. This allowsthe price to act as a rationing mechanism,reallocating resources. In many casesthough, this equilibrium price is far toohigh for many to pay and the governmentmay have to intervene to protect the in-terests of the consumers.

Governmental market intervention hadits origin during the second world war, inthe backdrop of the Bengal famine (1943)and the consequent shortages of food andessential commodities. Market inter-vention was initially aimed at bene-fiting government employees and others

considered crucial to the war efforts.Subsequently, when conditions worsenedfurther, the scheme was extended to coverthe common people.

As the war intensified, free marketoperations were abandoned. India dependedon imports to meet essential commodityrequirements. Though controls introducedto ration supplies were tedious, they fi-nally descended into the government ofIndia’s food policy.

Once normalcy was restored, free mar-ket operations were allowed. But sincethen, the government of India has madeit a practice of observing the situation andintervening in the market whenever nec-essary to ensure availability of essentialcommodities to consumers to protect themfrom exploitation by traders. The AndhraPradesh government has gone in for marketintervention since 1998.

Market intervention involves stabili-sation of prices through procurementof essential commodities when/wherethe prices are low and distribution toconsumers at reasonable prices when theruling retail market prices are high.

The process of market intervention in-volves decisions based on the followingparameters:– Identification of essential commoditieswhich may need market intervention, basedon the gap between the requirement/de-mand for each item and its productionwithin the state;

Onion Prices and StateInterventionOnion prices have been a politically volatile issue for stategovernments, especially since the BJP’s electoral debacle in Delhiin 1998. Market intervention by government has thus become a toolto regulate the supply and prices of onions. Recently, during aspike in onion prices, the Andhra Pradesh government used marketintervention to stabilise prices.

Table 1: Area under Onion CultivationTable 1: Area under Onion CultivationTable 1: Area under Onion CultivationTable 1: Area under Onion CultivationTable 1: Area under Onion Cultivationin Indiain Indiain Indiain Indiain India(‘000 ha)

Year Area

1990-91 3001991-92 3101992-93 3201993-94 3701994-95 3801995-96 4001996-97 4001997-98 4001998-99 4701999-00 490

Source: Department of Agriculture and Cooperation,Ministry of Agriculture, government of India.

Table 2: Statewise Area under Onion CultivationTable 2: Statewise Area under Onion CultivationTable 2: Statewise Area under Onion CultivationTable 2: Statewise Area under Onion CultivationTable 2: Statewise Area under Onion Cultivation(Lakh ha)

State 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 Per Cent Changefrom 1991-92 to

1999-2000

Maharashtra 0.6 0.62 1.02 0.94 0.93 0.96 0.65 1.04 1.13 89.24Karnataka 0.56 0.59 0.63 0.73 0.79 0.91 0.6 1.04 1.26 122.87Gujarat 0.17 0.26 0.23 0.2 0.19 0.17 0.21 0.52 0.2 14.37Orissa 0.45 0.42 0.44 0.48 0.5 0.38 0.47 0.46 0.46 2.65Tamil Nadu 0.27 0.22 0.25 0.29 0.21 0.25 0.27 0.37 0.38 44.36Andhra Pradesh 0.21 0.19 0.2 0.21 0.24 0.27 0.21 0.31 0.35 69.9Uttar Pradesh 0.32 0.34 0.28 0.28 0.34 0.3 0.27 0.26 0.28 -12.42Madhya Pradesh 0.18 0.15 0.19 0.2 0.21 0.24 0.2 0.24 0.28 53.63Rajasthan 0.19 0.15 0.16 0.17 0.22 0.24 0.2 0.2 0.25 32.98Bihar 0.17 0.16 0.17 0.2 0.18 0.19 0.18 0.2 0.2 21.21All-India 3.23 3.24 3.68 3.79 3.96 4.04 4.03 4.81 4.93 52.58

Source: CMIE.

Table 3: Production of Onions in Major Producing CountriesTable 3: Production of Onions in Major Producing CountriesTable 3: Production of Onions in Major Producing CountriesTable 3: Production of Onions in Major Producing CountriesTable 3: Production of Onions in Major Producing Countries(Mn tonnes)

Country 1995 1996 1997 1998 1999 2000 2001*

China 8.2 9.64 10.04 10.84 11.28 12.18 12.44India 4.04 4.08 4.18 3.62 5.33 4.9 4.7US 2.97 2.91 3.12 3.05 3.34 3.25 3.25Turkey 2.85 1.9 2.1 2.27 2.3 2.3 2.3Pakistan 1.01 1.1 1.13 1.08 1.14 1.65 1.5Iran 1.13 1.2 1.16 1.21 1.68 1.5 1.4Russia 0.88 1.06 1.08 1.05 1.13 1.32 1.11Korea 0.97 0.58 0.74 0.87 0.94 0.88 1.07

Note: *Provisional data.Source: FAO.

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– Decision regarding need for procure-ment and fixation of target for procurement;– Creation of storage capacities includingventilated godowns (for onions) andcold storage facilities (for chillies andtamarind);– Entrusting the responsibility for procure-ment to governmental agencies such as theAP State Civil Supplies Corporation, APMarketing Federation and AP OilseedGrowers’ Federation;– Identification of places of procurementboth within and outside the state;– Keeping procurement costs at the lowestlevel, by procuring the commodity whenprices are low;– Taking steps simultaneously to increaseproduction of identified essential com-modities within the state;– Regular and systematic monitoring ofopen market retail prices to identify highand low price centres and districts in respectof each essential commodity in the state;– Distribution of essential commodities toconsumers at affordable prices.

There are several means of market inter-vention. These include: Rationing of com-modities; providing subsidies; mani-pulating supplies (increasing market sup-ply when there are shortages and procuringcommodities when supplies are high andprices low; supplying through PDS/fair priceshops/rythu mitra/rythu bazaars; advisingon cultivation pattern; and providing sub-sidies for seeds, fertilisers and pesticides.

The Essential Commodities Act, 1955does not define ‘essential commodity’ ina conceptual form as such. As perSection 2(a) of the act, ‘essential com-modity’ means ‘any of the following classesof commodities’ such as– Classical fodder, including oil cakes andother concentrates;– Coal, including coke and other derivatives;– Component parts and accessories ofautomobiles;– Foodstuffs, including oilseeds and oils;

– Any other class of commodity which thecentral government may by a notified orderdeclare to be an essential commodity forthe purpose of this act;

Thus the act only lists the classes ofcommodities as essential commodities.

The act confers on the central govern-ment the powers to control production,supply and distribution of essential com-modities for maintaining or increasingsupplies or for securing their equitabledistribution and availability at fair prices.

Essential commodities in daily parlanceare mainly items that are consumed regu-larly. In a way it is a staple food to whichthe consumers have been habituated as anitem of daily consumption.

Hence the list of essential commoditiesmay vary from state to state and region toregion. In case of Andhra Pradesh, thefollowing are identified as essentialcommodities for the purpose of marketintervention: rice, red gram, groundnut oil,tamarind, chillies and onions.

Onion, which is classified as a veg-etable, is peculiar in the sense that it hasspecial culinary, medicinal and marketattributes. It is the world’s most widelyproduced and consumed vegetable, popu-lar among all classes of people in allcountries. Onion is relished even in its rawform, and has high nutritive and medicinalvalue. It contains both glucose (reducingsugar) and sucrose (non-reducing sugar).The special quality of onion is its smell(flavour), on account of which it is com-monly used in food and masala prepara-tions. The pungent taste of onion is dueto the volatile oil allyl propyl disulphidepresent in it.

India is the second largest producer ofonions in the world, next to China. In termsof area, India ranks first with over 4,90,000hectares (Table 1) or around 17 per centof the total world area under onion cul-tivation. The other major onion producingcountries are Turkey, Pakistan, Brazil, theUS, Iran, Spain and Japan. The area underonion cultivation in India has been grow-ing steadily over the years. However, therewas a remarkable increase in area afteronion prices shot up abnormally in 1998.From Table 1 it can be seen that in justone year, area under onion cultivationincreased by 70,000 hectares. Table 2reveals a similar trend in Andhra Pradesh,where area under cultivation increased by4,000 hectares in 1998-99, after the suddenprice rise. Since then, the area has beenlargely steady. In agricultural year 2001-02

Table 4: Production of Onions in IndiaTable 4: Production of Onions in IndiaTable 4: Production of Onions in IndiaTable 4: Production of Onions in IndiaTable 4: Production of Onions in India(Lakh tonnes)

State 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 Per CentChange from1991-92 to1999-2000

Gujarat 4.24 6.05 5.49 5.62 4.44 4.33 6.19 14.62 4.51 6.37Maharashtra 8.4 8.32 12.1 12.07 11.21 11.89 5.72 11.84 13.93 65.83Karnataka 5.23 4.26 4.14 4.32 4.4 5.09 3.6 5.88 5.95 13.77Andhra Pradesh 1.72 1.52 4.15 3.15 3.74 3.69 3.28 4.78 5.23 204.07Orissa 3.35 3.06 3.21 3.62 3.8 2.95 1.65 3.6 3.68 9.85Uttar Pradesh 4.83 4.57 3.32 3.19 3.96 3.86 2.52 3.18 3.92 -18.84Madhya Pradesh 2.32 1.7 2.27 2.15 2.35 3.09 2.62 3.17 3.68 58.62Tamil Nadu 2.12 1.85 1.98 2.94 2.32 2.1 2.35 2.9 3.16 49.06Bihar 1.37 1.45 1.49 1.54 1.37 1.45 1.41 1.89 2.12 54.74All-India 35.85 34.91 40.06 40.06 40.8 41.81 36.2 53.3 49 36.68

Source: CMIE.

Table 5: Yield of Onions in IndiaTable 5: Yield of Onions in IndiaTable 5: Yield of Onions in IndiaTable 5: Yield of Onions in IndiaTable 5: Yield of Onions in India(Kg/ha)

Yield 1995 1996 1997 1998 1999 2000 2001

India 10,661 10,316 10,348 9,091 11,391 9,932 10,106

Source: FAO

Table 6: Onion PricesTable 6: Onion PricesTable 6: Onion PricesTable 6: Onion PricesTable 6: Onion Prices(Rs per kg)

Year Highest Month Lowest MonthPrice Price

1998 22.88 October NA NA1999 8.89 January 4.13 April2000 6.49 December 3.01 June2001 8.71 November 3.64 May2002 7.42 October 3.39 May2003 9.34 November 3.78 March2004 10.07 January 8.30 January

Source: Directorate of Economics and Statistics,Andhra Pradesh.

Table 7: Average Wholesale Prices in APTable 7: Average Wholesale Prices in APTable 7: Average Wholesale Prices in APTable 7: Average Wholesale Prices in APTable 7: Average Wholesale Prices in APduring Peak Marketing Periodduring Peak Marketing Periodduring Peak Marketing Periodduring Peak Marketing Periodduring Peak Marketing Period

(Rs per quintal)

1994-95 1995-96 1996-97 1997-98 1998-99

255.91 381.75 407.07 657.39 442.84

Source: Directorate of Economics and Statistics,Andhra Pradesh.

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it was 32,000 ha and in 2002-03 it was27,000 ha. In 2002-03, rains affected thecrops to an extent. Onion is grown mainlyin the districts of Srikakulam, Cuddapah,Ananthapur, Kurnool, Mahaboobnagar,Medak and Ranga Reddy.

Total world production of onions is about490 lakh metric tonnes, of which Chinaproduces 27 per cent (Table 3). India’sshare is nearly 10 per cent, at 47 lakh mtper annum. About 11 per cent of India’sproduction is from Andhra Pradesh(Table 4). India’s onion production jumpedfrom 20 lakh metric tonnes in 1974-75 to55 lakh metric tonnes in 1998-99. Theyield per hectare, however, is very lowat 10.1 mt per hectare as against a worldaverage of 17.1 mt per hectare. The risein production was due to increase in areaunder onion cultivation from 1.95 lakh hato 4.7 lakh ha. The share of Andhra Pradeshin the total production of onion is around11 per cent at 5 lakh mt per year.

Increase in acreage does not necessarilymean matching supplies with demand. Theyield per year keeps changing as seen from

Table 5. Yield fell by 12 per cent from1997 to 1998 but went up by 25 per centin the next year. Rains could have beena factor, but the fact remains that there isalways a mismatch between demand andsupply. Demand for onions has also beenrising over the years. Periodic shortagesare observed in case of onion and each timethe shortages are met through increase inprice and imports. But the increase in priceof an essential commodity like onion iselectorally important.

Price TrendsPrice TrendsPrice TrendsPrice TrendsPrice Trends

Onion prices have become a matter ofconcern for state governments, especiallyafter the BJP’s electoral debacle in Delhiin 1998. Since the poor and rich alike inall the states in India consume onion, itsprice movements have political ramifica-tions. Almost all state governments havestarted associating onion price movementsto political fortunes. Table 6 gives an ideaof the general price situation for onions.In mid-January 2004, onion prices in

Andhra Pradesh began rising and reachedRs 20 per kg at one point of time. However,the state government initiated quick mea-sures to control prices, by importing fromNashik. In the first phase 10,000 quintalswere procured. The state government dis-tributed onions through rythu bazaars ata subsidised price of Rs 7 per kg, thesubsidy being Rs 3.50 per kg. An estimatedRs 1.75 crore may have been spent onsubsidising onions from mid-January tillmid-March. This timely market interven-tion by the state government contributedto protecting the consumers and control-ling the general price situation. This wasevident from the fact that onion pricesdeclined to Rs 7 from Rs 9 per kg at theretail level, in mid-March. Fresh arrivalsafter mid-March have cooled prices.

This study shows that market interven-tion can be used to control the prices ofcommodities. Onion prices have effectivelycome down through such intervention andconsumers have been protected. Rythubazaars form an important arm in theprocess of market intervention. ���