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The 2024 Indian general election is being held between April 19 and June 1 in multiple phases, meaning that the onion price trend is currently a topic of interest.
India is one of the largest producers and consumers of onions and fluctuations in onion prices can have large-scale socio-economic impacts on the domestic and international markets. Onions are a staple in Indian cuisine and a vital ingredient in households and restaurants, making the commodity a politically sensitive one. Price volatility has historically led to public unrest and political concern. Historically, high onion prices have led to discontent among consumers, whereas lower onion prices have upset a large voting bloc of farmers, making the onion market a crucial topic for the government, especially around elections.
One example of the political implications of onion prices was the result of the contest between the two most influential parties in India during the 1998 Delhi state elections when the Bharatiya Janata Party (BJP) lost to the Congress party. A major contributing factor to the BJP's defeat was the skyrocketing onion prices due to crop failure in the country.
Another example is the state elections in Maharashtra, India’s largest onion-producing state, which accounts for approximately 40% of the total Indian onion production. In the run-up to the 2019 state elections, retail onion prices surged, and onion farmers only made a small profit of Rs.1-2/kg far lower than previous profits that have reached as high as Rs. 5/kg, because of substantial cuts taken by the intermediaries. During campaigns, opposition parties used the high onion prices against the ruling party (BJP), blaming poor governance and inadequate agricultural policies for the price volatility.
In response to such volatility, the Indian government has intervened in various ways:
• Banning Exports: aimed at increasing domestic supply and curbing prices.
• Minimum Export Price (MEP): The government sets a minimum export price to discourage exports and stabilize domestic supply.
• Buffer Stocks: Strategic stocking of onions to release during times of reduced output or high prices to stabilize the market.
• Price Fixing and Subsidies: Occasionally, state governments have directly intervened in markets to stabilize prices, including subsidies and price caps.
Source: Agricultural & Processed Food Products Export Development Authority (APEDA)
Latest Market Update: Export ban
The Indian government imposed a ban on onion exports in December 2023, which was due to expire on 31st March 2024. The main aim of this ban was to curb rising retail onion prices, ahead of the general election. Thereafter, the price of onion in India fell by approximately 40% from Rs. 42.2/kg in December 2023 to Rs. 24.5/kg in March 2024. On 23rd March 2024, the Indian government extended this ban indefinitely – seen by many as a surprising tactic just before a general election. This exacerbated lower prices in the Indian market due to domestic oversupply. However, at the end of April, following criticism from onion farmers and traders, the government lifted the ban with effect from 4th May, amid staggered voting occurring in India. The declining onion prices continued to create discontent among farmers, one of the largest voting populations in India. More than 55% of the Indian population is involved in farming or farm-related activities. The government’s decision to lift the ban is expected to significantly benefit a vast number of farmers, particularly in the key onion-producing regions like Maharashtra, which are gearing up for the general election.
Source: Mintec Analytics
From 4th May 2024, India allowed the export of onions to six neighbouring countries including Bangladesh, the United Arab Emirates (UAE), Bhutan, Bahrain, Mauritius, and Sri Lanka. This decision formed efforts to relieve some of the market pressures domestically, where farmers were experiencing low returns due to overproduction and high intermediary profits.
Implications of lifting of the ban on the domestic and international market:
Efforts to balance the needs of consumers and farmers, highlight the delicate management of this politically and economically sensitive commodity-onions. With rising criticism from the opposition parties, farmers and traders, the government lifted the ban on onion exports from May. The government also decided to fill in the state emergency reserves with 500,000 tonnes of onions for the 2024/25 period (April 2024-March 2025). This initiative aims to mitigate future price volatility and protect farmers from sudden market fluctuations. According to a trader interviewed by Mintec, “The prices continue to fall as the new season harvest is already in the market. In addition, 400 containers (each with 25 MT of onion) were stranded at the Jawaharlal Nehru Port Trust (JNPT), as their website failed to update crucial information after the export ban was lifted. This created confusion regarding export duties, thus delaying the exports. The ripple effect of the export ban is seen in this scenario. The lifting of the ban is not proving to be beneficial for farmers as the prices continue to drop”.
Source: APEDA
On the international front, despite the lifting of the ban, onion exports will be subject to a minimum export price of USD 550 per tonne (Rs. 46/kg) along with 40% export duty. However, after adding export duty, the minimum price of shipment will be around USD 770/MT (Rs. 64/kg). The increase in export price could increase Indian onion prices on the Asian and Middle East markets. Countries such as Egypt, Pakistan and China compete with India in the Asian onion export market. The price of the Egyptian onion on 1st May 2024 was USD 387/MT. According to an onion trader in Maharashtra, “Indian onions are in greater demand in the Asian and Middle East market due to the better taste and low water content in the vegetable. However, if the price continues to be elevated at USD 770/MT, Indian onion exports could be uncompetitive in the Asian and Middle Eastern countries.”
Scenario analysis:
The BJP has historically invested more in manufacturing and infrastructural development than in agricultural growth. Agricultural exports reached USD 48.9 billion in the 2023/24 (April 2023-March 2024) Financial Year (FY), a decline of 8% from USD 53.2 billion in FY 2022/23. The export value in FY 2023/24 is significantly short of the ambitious target of USD 60 billion set by the BJP government for FY 2022/23. Also, the Agri-exports during the last 10 years of the Modi government grew by 1.9% from FY 2014/15 to 2023/24. The Agri-exports registered an annual average growth rate of 20% during the United Progressive Alliance (UPA) government (led by the Congress Party) in the period of FY 2004/05 to 2013/14. This indicates a decline in trade surplus, from a peak of USD 27.7 billion in FY 2013/14 to USD 16 billion in FY 2023/24. According to market participants, “If the growth momentum of Agri-exports during the UPA period had been sustained during the NDA period, agricultural exports could have reached USD 200 billion in 2024”. Many experts also feel that the onion prices could continue to be adversely impacted if the current government retains power and vice-versa if the UPA wins. On the other hand, the UPA government is likely to take time to reform the current agricultural policies, and a positive impact on agricultural commodities could be seen only in the medium to long term.
Co-authored by Harry Campbell, Market Researcher
