Food articles inflation in August 2013 (over last August 2012) stood at a biting level of 18%. Within food articles, while cereal prices were up by 14%, led by a 20% increase in rice prices, vegetables were literally on fire, with a price rise of 78%! Onion prices were soaring at 244%, but many other vegetables were not far behind. Cabbage prices were up by 120%, brinjals up by 84% and tomatoes by 43%. The only relief came from friendly potatoes, which were down by 15%. This exorbitant increase in prices of vegetables indicates that there is something seriously wrong with our vegetable sector, and unless we diagnose its problems and fix them, this will repeat year after year. It is onions this August, it could be tomatoes or potatoes or others in the coming years.
Before recommending any policy prescription, it is important to have a proper diagnostics of the situation. For this, first we should be clear that vegetable prices have a seasonality: they go up at the onset of monsoon in June and peak during August-September, almost every year. Sometimes, the rally may continue through the early weeks of October. But thereafter the prices decline and touch a low towards December-February.
Second, it must be noted that onions are demanded for their peculiar characteristic, namely their pungency, and are mixed with almost every other vegetable/dal/curry in tadka, which makes them tastier. Since there are no close substitutes to this pungency factor, it makes demand for onions very inelastic. In theory, what this implies is that a small decrease in supplies of onions can result in disproportionate rise in its prices.
Third, although onions are cultivated almost all over the country, yet Maharashtra (with 33% share) and Karnataka (with 18%) control more than half of Indias onion production, and more than 70% of inter-state trade. So what happens in these two states with respect to onions is critical. It may also be noted that onion has basically three major cropping seasons, one in rabi which is the biggest (60%), the other in kharif (20%) and then another one in late kharif (20%). Rabi being the major crop of onions, which is harvested during April-May, and is then stored for meeting demand till the next crop (kharif) comes in October-November. Obviously, August-September become critical months when the stocks-to-use ratio could be at its lowest ebb, and any disruption in supplies due