Case Analysis: India shedding tears on onion prices

Context and Background :

India, renowned for its culinary traditions, is currently grappling with a major issue - the
steep rise in onion prices. Onions hold a crucial place in Indian cuisine and are extensively
utilized in numerous dishes. The sudden surge in onion prices has caused distress among the
Indian populace, raising worries about affordability and availability of this vital vegetable. In
this report, we will analyze the factors behind the price hike, assess the consequences for
consumers and farmers, and explore potential solutions to tackle this problem.

Statement of the problem :

The sharp rise in onion prices in India can be attributed to several factors. One of the main
causes is a shortage of supply. Onions require specific climatic conditions to grow
successfully, and adverse weather like excessive rainfall or drought can significantly impact
cultivation and reduce the overall supply.
Transportation and storage issues also contribute to the price increase. Onions need to be
transported from production centers to different parts of the country, and disruptions in the
logistics chain can cause delays and spoilage.
Furthermore, the Indian government's export and import policies affect onion prices. Bans on
onion exports or increased import duties limit the availability of onions in the domestic
market, causing prices to surge.

Analysis :

Impact on Consumers and Farmers :

Onions are a staple in Indian cuisine, and India is one of the largest producers of onions in the
world. Onion production in India, however, is highly dependent on weather conditions and
seasonal fluctuations.
Production
India produces around 22 million tons of onions annually, accounting for roughly 17% of the
world's onion supply.
Consumption
India is also one of the largest consumers of onions in the world, with an average annual
consumption of around 5-6 kg per person.
Exports
India is a major exporter of onions, exporting around 2 million tons of onions annually to
various countries around the world.

Potential Solutions :
Here are some potential solutions that can be considered:
1. Improving storage and transportation infrastructure: Investments in modern storage
facilities and efficient transportation systems can help reduce wastage and ensure a steady
supply of onions to the market.
2. Promoting crop diversification: This can be achieved through providing training, financial
support, and access to alternative markets.
3. Enhancing government policies: The government can play a crucial role in stabilizing
onion prices through effective policies.
4. Supporting small-scale farmers: Empowering small-scale farmers with better market
access, credit facilities, and technical assistance can help them navigate the challenges and
ensure a fair share of profits.

Question and Answers :

1. What factors had affected the demand for onions? Which of these are long-run in nature
and which are short-run? In January 2011, the government intervened in the onion market to
bring prices down to Rs 35. Was this an attempt to enforce a price ceiling or a price floor?
How did it clear the market?
Solution : The demand for onions is affected by various factors, such as consumer
preferences, population growth, income levels, and dietary habits. Short-term factors can
include changes in supply due to weather conditions, while long-term factors involve changes
in agricultural practices and technology. In January 2011, the government took measures to
reduce prices to Rs 35 by implementing a price ceiling. This could have been done by
releasing onion stocks or imposing export restrictions to stabilize the market.
2. From time to time, the government announces minimum export prices. Do these constitute
price ceilings or floor prices? Who is expected to benefit from these prices? Who pays the
price for the government’s interventions in the onion market?
Solution : The government sets minimum export prices to guarantee Indian farmers a
minimum income when they export their agricultural products. This serves as a price floor,
ensuring that farmers benefit from a guaranteed price. However, these export restrictions may
lead to reduced domestic supply and higher prices for consumers in India.
3. Should the government continue to subsidize onion prices in the event of a large supply
shortage or should it incur large investment expenditures to construct scientific cold storage
facilities to provide long-run stability in onion prices?
Solution : The government's choice between subsidizing onion prices and investing in cold
storage facilities depends on their long-term goals and available resources. Subsidizing prices
offers short-term relief but may not solve long-term stability issues. Conversely, investing in
cold storage facilities can ensure a steady onion supply in the future, but requires substantial
upfront costs. To find a middle ground between immediate needs and future stability, the
government should consider a combination of short-term relief and long-term infrastructure
investments.
4. In your opinion, what are the most critical factors that would justify the decision to expand
infrastructure for onion storage?
Solution : Key factors justifying the expansion of infrastructure for onion storage include:
● Frequent supply shortages due to perishability, necessitating improved storage
facilities.
 ● The potential for increased onion production and exports, which calls for sufficient
storage capacity.
● The overall agricultural and economic policy goals of the government, including food
security and income support for farmers.
Rider: As part of the Deloitte consulting team, a comprehensive analysis of these factors
should inform recommendations to the Government of India regarding the expansion of
infrastructure for onion storage.

Conclusion:
The high onion prices in India pose challenges for consumers and farmers. Policymakers,
agricultural experts, and stakeholders must collaborate to tackle this issue. By improving
supply chain management, encouraging crop diversification, and supporting small-scale
farmers, India can achieve a stable and sustainable onion market. This will ensure affordable
onions for consumers and protect farmers' livelihoods.

Acknowledgement:
I would like to express my gratitude to Professor Dr Gajavelli V S for assigning us the case
analysis project on India's onion price fluctuations. This assignment offers us a valuable
opportunity to delve into the complex dynamics of agricultural economics and its socio-
economic implications.

References:

● https://www.bbc.com/news/world-asia-india-50527897
● https://www.livemint.com/news/india/onion-crisis-2019-and-the-social-cost-of-a-
broken-food-supply-chain-11575000808608.html
● https://economictimes.indiatimes.com/news/economy/agriculture/14-increase-in-cost-
of-living-due-to-rise-in-onion-prices-report/articleshow/72436138.cms