Onions, currently retailing for Rs 20-30 per kg in different parts of the country, are particularly vulnerable despite the imposition of a minimum export price (MEP) and official estimates that 2013-14 output would rise 14% to 192 lakh tonnes. This is because the rabi crop in Maharashtra and Madhya Pradesh has been extensively damaged by adverse weather, traders say, although there is no firm estimate of the loss. Further, the price of seeds has jumped 400% compared to the previous year as there is a big scarcity in the market. This will reduce the area under cultivation, traders said.
“The price can rise to Rs 100 per kg around October,” said a leading industry official, who did not want to be quoted because of the political sensitivity of onion prices. Leading traders and an official of a government body agreed with the assessment.
Like onions, adverse weather has also hit potato output, while the demand is high. Export of potatoes to countries such as Pakistan is driving up prices, but traders said restrictions on foreign shipments would not significantly change the fundamentals of the market. Prices may briefly fall by Rs 1-2 per kg from the current level of about Rs 20, traders said, but they will rise again due to short supply.
In addition to disincentivising potato exports, the government on Wednesday took initial steps towards banning the trading of potato futures.
It disallowed fresh positions in existing contracts through September, citing “low volumes and deliveries” on the futures market. Regulatory officials clarified that the step was not linked to food price inflation, though it comes at a time rising prices have created cause for concern.
While monthly contracts up to September run concurrently on commodity bourse MCX, margins to trade on the long or buy side for the June contract have been raised to 25% from 5% earlier with effect from June 23, reducing the leverage a trader can take from 20 times earlier to 4 times in the current month.
For the contracts from July through September, fresh trading positions will not be allowed with immediate effect.
Rather, traders will only be able to square off existing contracts. For instance, a trader holding an outstanding buy position will be able to sell the same and exit the market. Those having a sell position will be only able to buy it back.
Volumes of potato on MCX are very low indeed. For instance, potato volumes (Rs 34 crore) as a proportion of total volumes on MCX (19135 crore) were just.17% on Monday, market data on the bourse shows. On Tuesday,it was even lower at 0.1%.
Market participants said the regulator could have taken the measure as a matter of abundant caution against the decade old futures market being blamed for stoking inflation. Years ago, the government banned rice, tur and urad futures though a committee chaired by Abhijit Sen could not find a conclusive link between high food price inflation and futures trading in certain commodities.
“Though potato futures volumes are low, the government could have taken the step to discontinue fresh positions as a matter of abundant caution,” said Suresh Nair, director, Admisi Commodities.
In the case of onions, traders said prices could have been calmed with a good kharif crop that is planted in May and June, and harvested by October but the crop has been delayed by about 15 days and the outlook for the monsoon for the rest of the month is not bright. Historically, onion prices have always increased if the kharif crop is delayed or depleted.
Traders and exporters said the MEP of $300/tonne, which is the current export price, would not have an impact on the market. “MEP has proved to be of no use to curtail exports in the past. Despite MEP of $1,200/tonne, the exports continued last year,” said Danish Shah, managing partner of Sanghar Exports and member of the National Horticulture Research and Development Foundation (NHRDF).
Shah said that the government will have to plan to import onions right from now as the shipments take time to arrive.
It will have to avoid the mistakes done by last government, which took the decision to allow imports so late that it proved futile. Also, the cargo was waiting for a month at the ports due to phytosanitary issues.
“Currently, large quantities are shipped out on consignment basis. The government can also introduce letter of credit to allow genuine export to take place so that we do not lose our export market too,” said Shah. Curtailing exports will also help to keep a higher proportion of good quality onion within the country, which will last longer.
Importing the bulb at many ports and making a proper plan of its marketing will have to be on the agenda of the government to keep the prices up to Rs 50/kg.
Currently, onion is available in many countries and the landed cost can be Rs 25/kg to Rs 30/kg. However, the trade insiders say that the government should not import too early also, which will result in fall in prices,making farmers suffer losses. “The government will also have to be careful about the quantity of import to avoid international prices from appreciating,” said an old time trader.
In the case of potatoes, traders said export restrictions would encourage offloading of stocks but overseas sales is only one of the factors driving up its prices. “Prices of potato is going up for three reasons. Firstly, there is a shortage of potato in the market. Secondly, the export markets in Pakistan and middle east are very strong and thirdly, the Karnataka crop which is currently being sown has been affected due to less rainfall,” Rajesh Goel, general secretary, Federation of Cold Storage Association of India told ET. He said in Uttar Pradesh, the largest potato producer, storage of the tuber had fallen 12-14% due to rainfall in February.
Potatoes are being sold for Rs 20-22 per kg in the state, and the prices may drop by Rs 1-2 per kg for some time if exports are curbed, he said.”But that will be for a temporary period … Since there is a shortage in the market, prices will not drop drastically due to government intervention,” he said. Trade officials said potato sowing was down 40% in Karnataka as In Bengal, the second-largest producer of potato, prices are likely to rise from Rs 18 per kg to Rs 20-22 per kg as there is heavy demand from neighbouring states and even southern India as the output is falling, said Dilip Pratihar, advisor, West Bengal Potato Merchants Association .