With an Export Duty on Onions, It's Clear How Much the Government Prioritises Farmers' Income

It is clear that Indian agriculture does not produce enough surpluses due to which government intervention will continue whenever prices rise to levels considered uncomfortable by the government, especially if the elections are near.

After grappling with a surge in tomato prices, the Union government has decided to impose 40% export duty on onions until December. This is the first time that export duty has been imposed on onions. This ruins any chance of export.

Consumer interest has once more taken priority over farmers’ income. When farmers started agitating, the government had announced that 2 lakh tonnes onions would be procured at Rs 2,410 per quintal. Some would say that is the Minimum Support Price (MSP) for onions, a new tradition that farmers would hope will continue for other crops when farm gate prices crash.

With about 19.4 lakh hectares under onion, India grew 316.8 lakh tonnes of onion in 2021-22. Onion production in 2022-23 is estimated to be 310 lakh tonnes. Maharashtra continues to be the dominant producer of onions, accounting for 40.7% of domestic production (126.4 lakh tonnes) while 16.6% comes from Madhya Pradesh (51.5 lakh tonnes). 

Factors affecting sensitivity of onions

Onion is a climate sensitive crop as winter frost, high summer temperatures and untimely rainfall can hamper its yield. Untimely rains in April damaged the crop.

Onions are consumed round the year but 60-65% production is in Rabi (sown in November-December and harvested in April). 

Kharif onion is sown in June-July and is harvested in October-November. The late Kharif crop is sown in September-October and is harvested in December-January. Kharif and later Kharif produce about 20 percent each. 

Rabi onions are stored for consumption between June-September. The farmers have also created storage structures under various schemes of government.

In 2015-16, Modi government set up a Price Stabilisation Fund (PSF) that could be used to procure agricultural produce at market prices. In the first year itself, Small Farmers’ Agri-Business Consortium and National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) procured onions which were later sold in Delhi and other places through Mother Dairy. PSF has since been used to create buffer stock of onion and pulses. 

Ironically, for 2023-24, the Union budget provides only a token amount of Rs 1 lakh for PSF.  

Price outlook for 2023-24

There is a lot of fluctuation in price realisation by farmers. Figure 1 shows wholesale prices of onion of Lasalgaon, Maharashtra and Azadpur Mandi, Delhi. The wholesale prices of onion stood at only Rs 13.25 per kilogram (kg) in July 2023 in Lasalgaon and it was Rs 14.4 per kg in Azadpur. 

The retail price of onion in New Delhi was Rs 32.3 per kg in July 2023, up from Rs 26 per kg in June 2023. 

The price rise seems to have persuaded the Union government to release stock from onions procured under PSF. On August 11, the government announced sale of onion from its buffer stock.  

Figure 1: Wholesale and retail prices of onions at Lasalgaon (the largest wholesale onion market) and Delhi


Source: Agmarknet and Ministry of Consumer Affairs (accessed on August 22, 2023)

The farmers complain that Government help is not forthcoming when the prices fall to un-remunerative levels. In Lasalgaon, the price went down from Rs 20.10 per kg in November 2022 to just Rs 6.30 per kg in April 2023. 

Even in June, the price was only Rs 10.3 per kg. 

As monsoon progressed the price rose and on August 1, the wholesale price in Lasalgaon was Rs 13.70 per kg, which further increased to Rs 18.60 per kg on August 9. 

When the government imposed export duty of 40% on August 19, the wholesale price of onions was not unusually high at Rs 20.5 per kg (figure 2). 

Figure 2: Daily wholesale prices of onions in Lasalgaon 

Source: Agmarknet (accessed on 22 August 2023)

It must be pointed out that major source for data on wholesale prices of major crops is Agmarknet portal maintained by the Department of Agriculture and Farmers Welfare. However, the wholesale prices of onions in Azadpur mandi are not available for most of the year 2021, barring January and March. For informed policymaking, accurate and timely data is necessary.

In years of normal production, India is able to export onion to Bangladesh, Nepal and West Asia. In 2022-23, 25.25 lakh tonnes of onion was exported while in the previous two years the export was about 15-16 lakh tonnes. Export demand raises the price realisation of farmers. 

When farmers in Nashik agitated and mandi auctions were suspended, the government announced that it would procure at a price that is higher than the wholesale price that prevailed on August 19 when the export duty was imposed. 

At this price point, export duty was neither expected nor warranted as the onion farmers had an opportunity of realising better prices, after suffering from low prices when they harvested Rabi onions.  

It is clear that Indian agriculture does not produce enough surpluses due to which government intervention will continue whenever prices rise to levels considered uncomfortable by the government, especially if the elections are near.

Siraj Hussain is a former Union agriculture secretary. Kriti Khurana is a PhD scholar of economics at BITS Pilani, Hyderabad. Views are personal.