AN ENQUIRY INTO THE ROLE OF MARKET INTERMEDIARIES IN INDIA'S ONION CRISIS

This paper assesses the extent to which market intermediaries have been responsible for the crisis that onion markets have witnessed in the past few years. The paper found that commission agents and wholesalers frequently indulge in price manipulation to purchase onions at predecided prices instead of at auction prices. Big traders attempt to prevent entry of new traders in the market by utilising their market dominance, in order to limit market competition. Traders may also have resorted to hoarding of onions to take advantage of its price rise. This led to an artificial shortage of onions in the retail markets. Imposing of high margins by retailers also has caused sudden spikes in onion prices in retail markets.

- Avishek Roy

INTRODUCTION

In the last couple of years, onion prices have seen wide fluctuations. Onions are staple ingredient of Indian cooking. Rise in its prices causes distress to large sections of the population, especially the poor. This makes onion a “politically sensitive crop”(Chengappa et al(2012)Pg58). Apparently, unseasonal rains had curtailed supplies leading to a price rise. However, media reports have alleged that the shortage was artificial, as wholesalers had hoarded large stocks of onion. Academic papers that analysed patterns of onion arrivals in wholesale markets and onion prices (wholesale and retail) have made similar observations.

Onion farmers seldom benefit from an increase in its retail prices. Intermediaries (or middlemen) in the onion supply chain leverage their superior access to information or material resources and collude among themselves to prevent farmers of realising the best possible price for selling their harvest. By exploiting imperfections already existing in the regulated wholesale markets and by utilising their connections with market officials,intermediaries are sometime able to attain monopoly powers in these markets. As intermediaries continue pursuing policies for strengthening their stranglehold on the markets, farmers are made increasingly vulnerable. On the other hand, hoarding of onions by wholesalers and imposing of high mark-ups by the retailers increases its retail prices. This lands consumers are in extreme hardship.

This paper analyses the role played by commission agents, wholesalers and retailers in deepening the onion crisis by depriving farmers of a fair price for selling onions; and also by making onions exorbitantly expensive for consumers.