By Lawrence Ho
Not one onion is leaving India. This is the policy implemented by the Bharatiya Janata Party (BJP)-led government. You may think that this is a trivial issue, but is arguably a very scary prospect for the onion markets, as a country that exports 2.2 billion kilograms, worth around $514.3 million of fresh and chilled version of the vegetable overseas during the last calendar year, is stopping this supply. The embargo should be temporary, as the Indian government waits for prices to drop. But there is a reason why drastic actions like this are somewhat commonplace in Indian policy: the onion holds a lot of political power.
Onions are a major staple food in India. Their importance is akin to potatoes for the Irish and rice and noodles for most East Asian countries. 15 million tonnes of onions are consumed every year, and it is used in a multitude of recipes. It’s pureed, sautéed and garnished in meals, eaten raw as a salad, used as a dip, fried as fritters and crisps. It has as much significance to the rich as it does to the poor. As such the demand for it is almost perfectly inelastic: it has no substitute. This means that if prices rise dramatically, people will continue to buy the same amount as before, forgoing consumption on other goods. A fact to consider though, is that onions aren’t widely used in the south and east, with some religious communities, like Jainism, forgoing them completely. However, for much of the populous Northern states, when onion prices rise it can cause a major public disturbance.
Protests and unrest can occur amongst farmers and everyday households, with the blame placed on the incumbent government. This means that the vegetable has a lot political power. This is especially true in the northern parts, which proportionally send more MPs to the Indian Parliament due to having a greater population. It has the power bring down governments. Famously in 1980, Indira Gandhi swept to power by exploiting this, using slogans of soaring onion prices to symbolize the failing economic management of the previous government. In 2010, there were supply shortages of onions due to heavy rainfall leading to flooding, damage and bad harvest yields, meaning that in a week the price of onions per kilogram had risen from 35 to 85 rupees. Back then the policy was to abolish the 5% import tax as well as import onions from Pakistan out of fear of civil unrest.
The cause of this year’s shortage is like the cause back then: rain. During the monsoon season, which is a key period of crop accumulation, the rain has been very heavy, causing floods, damage of supply lines and lowering the crop yield. 35% of the onions stocks in storage, according to Nanasaheb Patil, director of the National Agricultural Co-operative Marketing Federation, have been damaged. The result is a price jump from 25 rupees per kg to 80 rupees per kg. In response, the government has banned exports and released supplies from its national buffer stock in hopes of decreasing the domestic price.
This has not been without controversy, especially with India’s trade partners. India’s neighbours, Bangladesh, Sri Lanka and Nepal are dismayed, having now to look for other countries for supply such as China, Myanmar, Egypt and Turkey, as well as dealing with their own rises in onion prices as a result. Shipment with these countries will take around a month, compared to with India which only takes a couple of days.
Unpredictable monsoon rainfall has been a fixture in the past couple of years, with onions being a primary victim. It highlights an inability of the government to deal with these crises, only reacting when consumers are angry as opposed to long-term planning. In the end farmers lose out, as they can’t sell the good domestically due to the high prices and can’t export due to the embargo, resulting in the crops deteriorating as they aren’t being sold. Potential solutions olutions would include better storage facilities during bumper seasons and processing onions by freezing them to ensure a good supply and ensuring prices don’t fluctuate. Narendra Modi must keep an eye on the onion, as it is key on ensuring food inflation is down and growth is good, as the onion is a key agricultural good as well as being linked with other industries like manufacturing and processing. Given that the Indian economy is only growing at 5% this year, with previous years at 8% and key state elections approaching, Modi’s fate is inexplicably tied with the onion.