Volatility higher, with more holding capacity

Onions, potatoes show wider range of swing than 5 years earlier

Volatility in the prices of essential commodities was registered higher in the pre-election year in 2013 than the previous similar year in 2008 due to traders’ increasing holding capacity.

Unlike in the past, traders carried over their inventory for the next day auctions to keep the price under control.

Onion prices in Lasalgaon mandi in Maharashtra, Asia’s largest spot market for this commodity, moved in the range between Rs 1,020-1,850 a quintal, thus witnessing a difference of Rs 630 or around 60% in February 2013. In comparison, the politically sensitive commodity moved between Rs 210 – 295 a quintal in February before closing higher on March 11, 2008 at Rs 345 a quintal.

Similarly, potato price range in the benchmark Agra market, was higher this year between Rs 570-685 a quintal as compared to Rs 300-385 a quintal in the pre-election year in February 2008.

Interestingly, benchmark onion prices have moved from Rs.400 in 2008 to Rs.800-900 per quintal now. However, farmers' cost for farming is also rising very fast.

“Market forces led by the supply-demand arithmetic determine volatility in agri commodities including onion. Onion and potato prices have moved abnormally even without any connection of pre-election period,” said R P Gupta, Director, National Horticulture Research & Development Foundation (NHRDF).

Onion is a very politically sensitive commodity. Hence, its price rases many eyebrows in farmers and political circles alike. The commodity has altered political climate in Delhi once and toppled the government of National Democratic Alliance (NDA) at the Centre on other occasion. Both, onion and potato move in tandem in terms of both pricing and sensitivity.

In December 2010, onion price shot up to Rs 6400 a quintal in spot Lasalgaon and Nasik mandis due to supply shortage. Severe crop damage was witnessed due to post-monsoon rainfalls resulting into lower output. This led to the government to levy the minimum export price (MEP) followed by a complete ban on exports. Potato also followed suit to jump sharply at Rs 700 a quintal in the aforementioned month in Delhi’s spot market from the level of Rs 250-300 a month ago.

Lured by higher realization, farmers brought additional area under onion and potato in the next season. Consequently, the new season crop harvested in December 2011, farmers in Punjab dumped tonnes of potato on the road as due to falling realization lower than the transportation cost to mandis.

The 2013 season, however, is different from the past. Delay in the monsoon rainfalls in 2012 season extended sowing of onion and potato. Also, prolonged unseasonal rainfalls during the harvesting season in February 2013 delayed arrival of the new season crop to mandis. Amid concerns of continuous consumer demand, the price of essential vegetables shot up this year. But, prices declined later with the speed of harvesting.

“Today, model price of onion has risen to Rs 800-900 a quintal as against around Rs 200 a quintal in 2008. Any price below Rs 1000 a quintal would fetch farmers losses,” said a Lasalgaon based trader.

Meanwhile, continuous awareness created by the market development agencies has made farmers matured. Big farmers can hold goods if the price goes below the cost of production. Also, auctions are not taken fully daily basis unlike in the past. Some quantity is held for auctioning the following day, perhaps, to maintain the price level, he added.