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Explained: Why the government has banned the export of onions

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Written by Parthasarathi Biswas, Edited by Desplained Desk | Pune |

15 September 2020 10:59:58 am


onions, onion ban, onion ban explained, onion export ban, government bans onion export, onion wholesale price, onion retail price, onion pricesA worker holds a bag of onions at the APMC market in Ahmedabad on September 7, 2020. (Express Photo: Nirmal Harindran)

On Monday, a shocked central government issued a statement banning the export of onions even when the average market price of the lamp crossed the psychological barrier of Rs 30 per kg in the wholesale market of Maharashtra Lasalgaon. The ban came just three months after the government led by Narendra Modi amended the Archaic Essentials Act, 1955 to make stock limits and movement restrictions on cereals, edible oil seeds, potatoes, onions and commodities other essentials applicable only to extreme conditions like war or natural disaster. The export ban also comes when the central government works to make the ordinance a law.

A look at the export ban and its possible consequences in the coming days.

What were the reasons that led to the export ban?

There seem to be two main factors pushing the government to take the extreme step of imposing a blanket ban on exports of all types of onions. The first was undoubtedly the steady rise in wholesale prices of onions, which has seen kitchen production become more costly in urban markets. Between March and September, the average lamp price in the Lasalgaons market was estimated at nearly 100 percent. Prices in the Niphad taluka markets of Nashik district, which were in the range of Rs 1,500 per quintal on Mars, have since been estimated at Rs 3,000. In the retail markets, onions are now trading between Rs 35-40 per kg compared to Rs 25-30 per kg in June.

The immediate cause leading to the ban can also be found in the Consumer Price Index (CPI) numbers released by the Ministry of Statistics and Program Implementation (MoSPI) on Monday. The figures, which measure inflation, were 6.69 per cent slightly lower than last month’s 6.73, but well above the Reserve Bank of India (RBI) target of 6 per cent. The Consumer Food Price Index (CFPI) for August was 9.05 compared to 9.27 last month.

At the policy level, the high CFPI and rising onion price were enough incentives to take an onion export ban at a time when farmers were unloading their stored onions.

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Why are onions more expensive in wholesale markets?

The answer to this question can be found in the extremely heavy rains that hit the country in August. These rains have led to a near-complete washing of the ready-made onion market in Karnataka which would hit the market in early September. Along with this, the rains have also caused havoc on onions stored in Madhya Pradesh, Gujarat and parts of Maharashtra. Currently, it is only onion growers in Maharashtra who have harvested the crops they harvested in March-April. The supply disruption is likely to continue until new production in Maharashtra hits the market in early November.

If the domestic supply demand situation leaned too much towards the latter, the demand for Indian onions is also increasing from international markets. Indian onions, normally shipped from countries in the Gulf, Sri Lanka and Bangladesh, have a steady demand throughout the year. However, demand from Sri Lanka, exporters say has suddenly increased as the island country has also reported severe destruction of their crops due to rains. The discounted cost of Indian onions in the port of Dubai at the moment is around 32-35 Rs per kg which has led many exporters to increase their shipments from Nashik.

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So the export ban will lower onion prices?

As soon as the markets open for trading on Tuesday, a sharp devaluation of prices is expected to occur in view of the export ban. However, traders think prices will rise again within a week, as overall supplies will remain stressed. New products, they say, will arrive only after November and with demand expected to increase before the start of the Dussehra festive season, prices will continue to remain bullish.

Will the ban on onion exports have any political impact?

The political decline of high onion prices can hardly be overestimated. With elections in Bihar likely to be held later this year, the government seems to have been wary of going to the electorate when kitchen production was more costly than usual.

Ironically the export ban comes when the government plans to make ordinances that amended the Essential Commodities Act into law and ban dizzying reactions like setting stock limits. Farmers’ organizations rushed to call for a “double standard” on the part of the government. As of Tuesday, Shetkari Sanghtana, the farmers’ union started by legendary farmer leader Sharad Joshi, has started protests against the move.

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