A many-layered price policy

Ajit Ranade
The government tries to stabilise prices with bans on exports, instead of getting to the core of the problem

Understanding agricultural price policy is like removing the layers of an onion. You never seem to reach the core idea. But that might be simply because there isn’t one! 

A coherent pricing policy can usually be based on the principle of market prices which can reasonably balance the competing interests of farmer producers and city consumers.

But since agricultural prices fluctuate so wildly, the actual policy is often a fire-fighting exercise. The onion price scare is a good illustration of this.

Quite suddenly, the government has announced a ban on exports. Well not quite a ban, but it has made the minimum export price so high, that it is a virtual ban.

Consumers have some relief, but producers and those who export onions to the lucrative Middle East market, are hurt. But not to worry, the ban is only for 15  days.

By then new arrivals from the November crop might be so abundant, don’t be surprised if the government announces an export incentive scheme.

While the government is punishing onion growers, it is rewarding wheat growers. The central government this week announced an unprecedented 33 per cent hike in the price guaranteed to wheat farmers.

Sugar, too, gets sweet treatment, where exports are being encouraged, and demand is being buttressed by mandating that petrol be mixed with 10 per cent ethanol made from sugarcane. Why, then, the stepmotherly treatment to onions?

This question is most pertinent to Maharashtra, since the state produces almost a third of the nation’s onions, with Lasalgaon being Asia’s biggest wholesale onion market. Onions, along with sugarcane and cotton, are the sine qua non of the state’s agricultural economy.

The political importance of onions is heightened since its prices can swing elections. It’s quite ironic that onion is not even an essential food item. In fact, some communities don’t even touch the bulb.

Catering to the producers’ interests is, therefore, a big political priority. But the central government’s diktat sometimes overrules these considerations.

Onion prices would not have fluctuated as much if we had more, and better, scientifically designed storage facilities, including those using nuclear irradiation. Such storage could then serve the purpose of buffer stocks and dampen price fluctuations, much like in the case of rice and wheat in the public distribution system.

Onions can also be grown as three crops in a year. Adequate compensatory smoothening of prices through future markets, like pulses or sugar can also be offered. 

Furthermore, the price that a city dweller pays is typically several hundred per cent higher than what a producer gets.

And export bans don’t seem to lower city prices. There’s talk of Pakistani imports too, to bring down prices further. That’s sure to bring tears to the eyes of Nashik farmers.

The larger lesson in price and ban tinkering is that markets need to be much better integrated. There has to be substantial investment in storage, and price discovery.

Also, the gap in returns to the farmer and the premium paid by the housewife needs to be reduced drastically. That would mean tackling middlemen, mandi and truck operators.

Until then, we can only wipe away tears with bans and ‘unbans’!

— Ranade is chief economist with the Aditya Birla Group.