Why is the Price of Onions Rising?

Why is the Price of Onions Rising?

Tomato prices stabilised, but onions are on the rise again. Discover the cause behind the price hike and how it contributes to food inflation.

Just a few months ago, people were facing a lot of trouble because of the high prices of tomatoes. In July, the price of tomatoes had gone up to Rs 200 per kilogram. Then, in August, there was a significant increase in onion prices. After some relief, we see another big jump in onion prices. According to Navbharat Times, last week, onions were being sold for Rs 35 to 40 per kilogram, but now they are at Rs 60 to 80.

You might be curious about why vegetable prices keep going up. 

In this article, we will take a closer look at the inflation in vegetable prices and also explore what the future might hold in terms of vegetable prices. 

What’s Happening?

As per a report from Business Line, data from CRISIL reveals that Consumer Price Index (CPI) vegetable inflation has been averaging around 5.7% during the financial years 2020 to 2023. This is a significant increase compared to the previous financial years, from 2016 to 2019, where it averaged around zero percent.

The CRISIL report points out that the inflation in vegetable prices has been steadily increasing in recent years, primarily because of a mismatch between supply and demand. Several factors contribute to this, including population growth, changes in demographics, rising incomes, and shifts in dietary preferences. These factors collectively drive up the demand for vegetables, putting pressure on their prices.

Main Reasons For Vegetable Inflation 

The rise in vegetable prices can be attributed to several key factors:

Population Growth and Demographic Transition

With a growing population, the demand for food, including vegetables, is increasing. Additionally, a significant portion of the population is moving from rural to urban areas. Urbanisation often leads to changes in dietary preferences, with more people opting for healthier diets that include vegetables. As a result, the demand for vegetables has surged compared to the available supply.

Reduction in Production

According to Business Line, a CRISIL report states that India is ranked second in vegetable production, with a high global standing, surpassed only by China.

While there has been an increase in vegetable production, it hasn’t kept pace with the rapidly growing demand. Furthermore, the yield of major crops like tomatoes and onions has stagnated, making it challenging to meet the rising demand.

Crop Damage Due to Climate Change

India’s agriculture sector heavily relies on the monsoon. Climate changes, such as irregular rainfall patterns and unseasonal rainfall, can adversely affect crop yields. Even a single extreme weather event can damage crops, leading to a sharp drop in supply and subsequently causing prices to rise. India has faced various weather-related challenges in recent years.

Pest and Storage-Related Issues

Crops are vulnerable to damage from both weather-related factors and pest infestations. Additionally, losses occur during post-harvest storage and transportation, which further reduce the available stock in the market. These factors collectively contribute to the increase in vegetable prices.

Importance of Tomato, Onion and Potato Prices

In India, tomatoes, onions, and potatoes (TOP) are among the most commonly consumed vegetables. According to the CRISIL report, any price fluctuations in these three vegetables have a significant impact on the overall fluctuations in Consumer Price Index (CPI) vegetable inflation. 

For instance, vegetable inflation went from zero in the past four financial years to 5.7% during the financial year 2020-23. The primary reason for this increase was the sharp 9.1% rise in inflation for tomatoes, onions, and potatoes.

The report highlights that the prices of these three vegetables exhibit a very high volatility. This volatility is much higher than what is observed in the overall vegetable category. As a result, the price fluctuations in these key vegetables can have a substantial influence on the overall inflation rate for vegetables in India.

Government’s Efforts to Control Rising Prices

Onion prices are rising again, and the government is taking steps to manage the situation. According to CNBC TV18 and PTI, due to a 57% increase in the retail price of onions to Rs 47 per kilogram, the central government has decided to release onions from the ‘buffer stock’ at a discounted rate of Rs 25 per kilogram in retail markets. This move aims to provide relief to consumers who have been impacted by the rising prices.

Additionally, to control exports and ensure an adequate supply of onions in the domestic market, the government has set a minimum export price of $800 per metric ton, as reported by CNBC TV18. These measures are intended to stabilise onion prices and maintain a sufficient supply within the country.

What’s Next?

According to the CRISIL report, there is some good news on the horizon. Price pressure on vegetables is reducing as fresh supplies arrive in the market. This influx of fresh produce is helping to ease the pricing situation.

Moreover, as reported by ABP Live, there was a significant drop in vegetable prices in September. This decrease led to a decline in the inflation rate of vegetables, down to 3.39%. In August, the vegetable inflation rate was much higher at 26.14%.

While tomato prices, which had crossed the Rs 200 mark in July, have stabilised after about 2 to 3 months, it remains to be seen when onion prices will also return to more normal levels.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information purposes only. This is not an investment advice. 

*Disclaimer: https://tejimandi.com/disclaimer

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