Analytical Study based on Correlations of Price & Production Trends of Onion Market

Introduction

 Onion production in India is carried out mostly by small and marginal farmers—and
hence fiscally incapable of manipulating market supplies.
 The crop is grown thrice a year: Rabi (March-June), kharif (October-December) and
late kharif (January-March).
 The Rabi crop, harvested between April and June, accounts for 60-65% of the annual
production and sustains consumers till October-November.
 Maharashtra and Karnataka together account for more than half of the country’s onion
production.

Now, the production of the crop, as you can see from the graph, has actually grown very
steeply in the last eight years. It has more than doubled in this period and is projected at 19.36
million tonnes in 2014-15 (as per advance estimates put out by the agriculture ministry).

The online market is traditionally characterized by a high level of supply and price volatility.
Basic economic theory tells us that when supply of a good grows, especially when the growth
is as sharp as in the case of onions, prices should dampen. Unless, of course, Indians have got
into an onion-eating frenzy of late.

We start to sense why economic logic has been turned on its head if you observe that the big
turnaround in price movements takes place around 2012-13. Part of the reason is that over the
past few years, about 1-2 million tonnes of onions are exported. But the growth in production
is more than sufficient to absorb such diversions—in other words, yes, onion exports
contribute to supply shortfall, but not to the extent to warrant such a price spike.

Another study conducted by the National Institute of Agricultural Marketing in 2012

analyzed the surge in onion prices in the year 2010 and confirmed that prices of onions were
hardly related to production shortages.

Aims and Objectives

1. To understand price trends of onions

2. To understand the production trend of onions
3. To study correlations between the production and price trends
4. To figure out the reasons behind the correlations if any.

Need & Importance

Every now and then we Indians face issues with a sudden price hike in prices of onions which
ultimately leads in no purchase or very limited purchase of onions. However India alone
accounts for 40% of onion production and Exports to other countries as well. Then come the
question “why do prices inflate for onion every now and then”. This study will study the
cause and project the price and production trends.

Presentation of data and importance

Production (million
Years Tonnes) Price (₹/ Quintal)
2007-08 9.14 785
2008-09 14 695
2009-10 12 803
2010-11 15 918
2011-12 18 657
2012-13 17 2217
2013-14 20 2310
2014-15 19.36 2392

Production (million Tonnes)

25

20

15

10

0
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Graph 1 shows the rising curve of production of onions from the year 2007-2008 to 2014-
2015. This shows that supply of onions has been rising but observed a steep fall in the years:
2009-2010, 2012-2013 and 2014-2015. However in all there’s a rise in production from 9.14
million tonnes in the year 2007-08 to 19.36 million tonnes in 2014-15.
 Price (₹ / Quintal) in Laslgaon
2014-15 2392
2013-14 2310
2012-13 2217
2011-12 657
2010-11 918
2009-10 803
2008-09 695
2007-08 785

0 500 1000 1500 2000 2500 3000

Chart 2 shows that July month was studied from 2007 to 2015 to study the price trend in
rupees per quintal. In the year 2009 and 2012 supply was high but the prices were lowered to
695 and 657 respectively. In the rest years prices kept on rising. 2013-2015 observed a great
increase in price.

Correlation Test
Supply (million Tonnes) Price (₹ / Quintal)
Supply (million Tonnes) 1
Price (₹ / Quintal) 0.695270569 1

Correlation between production of onions and its prices was found using Microsoft excel.
The correlation coefficient obtained is 0.69 which falls on the extreme border range of
moderate reliability of the test performed. Referring to the charts above it can be stated that
supply and demand are positively correlated however; correlation reliability or strength is
moderate in nature.

Reasons behind price Instability:

The reason behind price rise could well be the lack of competition in the markets as big
players dominate in the wholesale markets instead of independent farmers or small traders
who could keep the prices in check by ensuring multiple supply sources.

Price rises are largely artificial and due to big traders who are buying farm produce in bulk at
cheap during the harvest season when farmers look to dispose off produce and earn some
cash. Then, the traders try to tighten the supply through hoarding during the lean seasons for
onion production.

Although enough onions are produced but a significant quantity from the stock never makes
it to markets because of various post harvest losses which usually occur due to diseases. The
situation is further exacerbated by a lack of reliable infrastructure across markets that can
keep the produce safe until it is taken to the markets.

The loss, occurring post-harvest, is believed to be as much as 25%-30% for onions according
to a research paper titled “Indian onion scenario” produced by the National Council of
Applied Economic Research”.

“Physical injury during and after harvest, greening of onion due to exposure to sunlight,
sprouting and injuries during storage due to ammonia, controlled-atmosphere storage, and
freezing also cause post-harvest losses”. The paper added that absence of storage facilities
result in various diseases such as bulb rot or bacterial rot which end up greatly reducing the
quantity and quality of onions.

Conclusion

1. Despite of continuous increase in production price has always been increasing except
one or two years from our study year slab, as seen in the discussion above.
2. Production trend of onion market is increasing with a slight fall in few years.
3. Production is positively and moderately correlated to price of onions.

Suggestions

1. Price hike can be controlled to a significant level if the majority of consumers

purchase directly from farmers and bypass the middle agents. This could be possible
if Farmers take the risk of direct selling to the masses.
2. Proper channelization of Onions to the markets/ mandis should be made so as to fill
the production and supply gap.

References:

1. Anil Padmanabhan, August 2015, The curious case of rising onion prices, limint.com.
Accessed 15th August, 2018.
2. Horticulture Statistics at glance 2018, Government of India, p. 311
3. Jagbir Singh Punia, 2012, National Council of Applied Economic Research, Annual
Report 2011 -2012, New Delhi
4. Mayank Jain, August 2015, Two charts shows why onion prices are rising despite
increased production, Scroll Magazine.