In a notification late Friday, the Directorate General of Foreign Trade(DGFT) fixed a Minimum Export Price (MEP) of $850 a tonne on onion and also allowed the import of 2,000 tonnes of the vegetable through nominated agencies.
While government-owned MMTC has already stated that it will not import the bulb from Pakistan due to the Kashmir issue, other countries such as Afghanistan and China can export it to India at the current prevailing price or even higher, with the entry of Indian importers.
The government's decision comes at a time when onion prices have more than doubled since August. Trading at Rs 13.20 (model price) in Asia's largest benchmark Lasalgaon mandi early August, onion prices suddenly shot up to trade at Rs 29.50 a kg on Friday. During this period, however, total arrivals in Lasalgaon mandi slumped to 900 tonnes from 2,356 tonnes six weeks ago. Onion prices have also surged in other markets.
"The government's action is unwarranted. Farmers get such an opportunity to make some money once a three or four years. The government does not intervene when prices hover below cost of production. In any case, the new crop is coming to the market in one month. By the time the import consignment comes to India, the new crop would hit mandis. But, the current announcement will definitely pull down market momentum," said Jaydatta Sitaram Holkar, Chairman, Agricultural Produce Market Committee (APMC), Lasalgaon.
Even between February and mid-May this year, onion prices moved in the Rs 4-9 a kg range. Thereafter, they started firming up steadily to move to Rs 11-13 a kg until mid-August. But after that they shot up due to supply disruption in major growing regions following floods, reports of crop damage of the planted stems and high-moisture spoilage of stored quantity in cold storages.
Meanwhile, the Directorate General of Foreign Trade (DGFT) on Friday said, "Export of onion shall be permitted only on letter of credit (L/C), subject to an MEP of $850 fob a tonne till further orders."
The Union Ministry of Commerce also issued a separate notification on Friday allowing the import of 2,000 tonnes of onion.
"Onion arrivals have declined on a cautious approach by farmers and stockists amid government action. There is no shortage of onion in India," said Balasaheb Jayaram Deshmukh, Administrator, APMC, Pune.
A Nashik-based onion trader estimated spoilage of a huge quantity of onion kept in low-lying storages. Hence, prices are likely to remain firm for the next one month, he added.
Onion in the retail Mumbai market is quoted at Rs 40 a kg. Retailers believe that this may rise further to Rs 50 a kg in the next few weeks.
"Instead of levying MEP and benefitting farmers in other countries, the government should have helped domestic cultivators to earn some money duringthis period, in order to help them bring more area under the crop next year," said Holkar.
The rise in onion prices is supported by fear of crop damage of the standing stems in the field and estimates of lower output next year.