You know inflation is high when onion prices begin to soar. Over the past few weeks, onion prices have nearly doubled to Rs 30 per kg.
India is the second largest producer of onion in the world after China. According to 2010 estimates by Food and Agriculture Organisation (FAO), an agency of the United Nations, India contributes nearly 19.25% of the world onion production. Yet, it is found that a few people can influence the market price of onions and create an artificial scarcity.
Sandip Sabharwal is a Mumbai-based fund manager who has spent 19 years in managing equity investments gave an insight into the modus operandi of the cartel.
A report by the Competition Commission of India or CCI submitted to the government three years ago highlighted the presence of an onion cartel.
In a public post filed last month on Facebook, Sabharwal said that the onion cartel operators double their money in couple of months making a mockery of the sophisticated stock market system.
Here is how the cartel works:
• The onion crop produce comes in large quantities in December and April and a small crop in October each year.
• The December crop is the time when prices normally fall and consumers have a good time with low Onion prices. The cartel keeps a low profile during this time frame where they let the entire December crop flow into the market, thus creating a scenario of low prices and consumer happiness. They wait for the next crop in April.
• The Cartel starts mopping up all the supplies that are coming into the markets in the month of April and early May. Farmers get their typical Rs 6-10 per kg as the middleman network keeps the prices down till the time the supply from the farmers is exhausted. On an average the cost to the cartel comes to Rs 8-10 per kg.
• The aim of the Cartel is to hold on to the produce in their warehouses and cold storages for a period of 3-4 months. The cost of storage comes to around Rs 2-3 per kg and they also account for about 30% wastage in storage.
• The cartel makes full use of technology in order to track the stocks position and to estimate the kind of levels to which prices can be ramped up by August/September. By this time prices are up by at least 100% over their buying price. It is already evident this year where prices have shot up at the retail level from Rs 15 per kg to Rs 25-30 per kg over the last 4 weeks.
What is the government doing
The government announced a limit on the quantity of onions and potatoes wholesalers can hold to curb hoarding. The government saw enough quantity of onion and potatoes in India.
The government has also put curbs on exports by raising the minimum export price by 67%. A high price would make Indian onion expensive in the international market and most of the supply would find its way into the Indian market.
India produced 19.2 m metric tonnes of onion in 2013-14, according to the last data. The output has jumped from 14m metric tonnes 2011-12. Maharashtra and Karnataka are the largest onion producing states in the country. In 2012-12, Maharashtra contributed 32% (5 metric tonnes) of overall onion production. Karnataka contributed 17.6% (2.7 metric tonnes). India exported 1.4 m metric tonnes of onion.
India is the second largest producer of onion in the world after China. According to 2010 estimates by Food and Agriculture Organisation (FAO), an agency of the United Nations, India contributes nearly 19.25% of the world onion production. Yet, it is found that a few people can influence the market price of onions and create an artificial scarcity.
Sandip Sabharwal is a Mumbai-based fund manager who has spent 19 years in managing equity investments gave an insight into the modus operandi of the cartel.
A report by the Competition Commission of India or CCI submitted to the government three years ago highlighted the presence of an onion cartel.
In a public post filed last month on Facebook, Sabharwal said that the onion cartel operators double their money in couple of months making a mockery of the sophisticated stock market system.
Here is how the cartel works:
• The onion crop produce comes in large quantities in December and April and a small crop in October each year.
• The December crop is the time when prices normally fall and consumers have a good time with low Onion prices. The cartel keeps a low profile during this time frame where they let the entire December crop flow into the market, thus creating a scenario of low prices and consumer happiness. They wait for the next crop in April.
• The Cartel starts mopping up all the supplies that are coming into the markets in the month of April and early May. Farmers get their typical Rs 6-10 per kg as the middleman network keeps the prices down till the time the supply from the farmers is exhausted. On an average the cost to the cartel comes to Rs 8-10 per kg.
• The aim of the Cartel is to hold on to the produce in their warehouses and cold storages for a period of 3-4 months. The cost of storage comes to around Rs 2-3 per kg and they also account for about 30% wastage in storage.
• The cartel makes full use of technology in order to track the stocks position and to estimate the kind of levels to which prices can be ramped up by August/September. By this time prices are up by at least 100% over their buying price. It is already evident this year where prices have shot up at the retail level from Rs 15 per kg to Rs 25-30 per kg over the last 4 weeks.
What is the government doing
The government announced a limit on the quantity of onions and potatoes wholesalers can hold to curb hoarding. The government saw enough quantity of onion and potatoes in India.
The government has also put curbs on exports by raising the minimum export price by 67%. A high price would make Indian onion expensive in the international market and most of the supply would find its way into the Indian market.
India produced 19.2 m metric tonnes of onion in 2013-14, according to the last data. The output has jumped from 14m metric tonnes 2011-12. Maharashtra and Karnataka are the largest onion producing states in the country. In 2012-12, Maharashtra contributed 32% (5 metric tonnes) of overall onion production. Karnataka contributed 17.6% (2.7 metric tonnes). India exported 1.4 m metric tonnes of onion.