Once stock is ‘de-hoarded’, zero supplies till Oct
Perhaps the best thing that emerged out of Friday’s meeting of state food ministers was the reluctance of some of them like Maharashtra’s food minister—the state has the largest share of onion production—to impose limits on stocks of onions and potatoes that can be held in the manner the Centre wants them to. Apart from the fact that states don’t have enough manpower to strictly enforce the law, since a significant share of onions are held back by farmers who know prices go up before the new crop comes in during August-September, imagine the consequences of going and raiding farmers for hoarding. More so at a time when elections are in the offing in Maharashtra. But, also imagine the consequences of the states falling in line. Once the limits are set, and everyone is forced to ‘de-hoard’, onion/potato prices will crash; but since the new crop will come in only in late-September or early-October, prices will skyrocket over the next few months. And, if prices crash over the next few weeks, it is an open question whether farmers will want to sow onions/potatoes, worsening the current supply crisis.
At the end of the day, the question is not as much about hoarding as it is about supply shortages. In the case of onions, the rabi supply was hit by freak weather, so there was a shortage of around 10-15 lakh tonnes. While prices have remained reasonable till recently, they rose 47% in the week between June 24 and July 1, according to Agriwatch data, in Delhi, and 16% in Mumbai. With the kharif uncertain, and the brunt of the poor monsoon to be borne by western India, it is not surprising prices are rising even though there has been no let up in mandi arrivals. The reason why prices are rising despite supplies being more or less steady is the same reason why oil prices spurted after the Iraq crisis worsened—markets feared a collapse in supply. In the case of potatoes, like onions, prices are rising with the likelihood of a poor monsoon increasing.
Apart from the fact that putting potatoes and onions under the Essential Commodities Act and the massive hikes in minimum export prices is anti-farmer, it will also end up hurting consumers. The saving grace here are the kisan mandis that the agriculture ministry is trying to set up to give farmers —in the case of Delhi, where the Azadpur mandi is in the process of freeing-up sales of fruits and vegetables—an alternative place to sell, and the Reliance Freshs and Big Bazaars a place to buy. But just how uphill the task will be is best brought out by the fact that, while a market like Delhi consumes 15,000 tonnes of fruit and vegetables per day, the best that the Small Farmers Agribusiness Consortium in the agriculture ministry hopes to achieve over the next few months will be a marketplace for 1,000 tonnes a day. Creating alternate marketing channels is a challenging task, the last thing it needs is knee-jerk responses that curtail supplies.