Understanding causes of volatility in onion prices in India

Abstract

Purpose Post-2008 global food crisis the prices of perishable high-value food commodities, such as vegetables and fruits, in India have risen faster and become more volatile compared to that of cereals. The welfare consequences of price shocks though are well understood yet the policy responses to manage these remain blurred because of a lack of clarity on their causes. Focusing on onions that comprise an important constituent of the Indian diet, the purpose of this paper is to explore causes of high price volatility. Design/methodology/approach Using high-frequency time series data on wholesale prices and arrivals of onions in major markets and other relevant variables, this paper analyzes causes of price volatility from several angles, that is production shocks, seasonality in production and market arrivals, internal trade, export policies and market power of intermediaries on the supply chain. Findings Despite markets being integrated and no significant climatic shocks to production there exists a strong element of uncertainty in market arrivals of onions, pointing toward the market power immediate downstream the production or alternatively anti-competition trade practices in major markets as a cause of high price volatility. The measures to manage price volatility, such as an increase in minimum export prices and bans on exports, are also not found to have an immediate cooling effect on prices. Research limitations/implications The agricultural policy should provide for a system of market intelligence to monitor anti-competitive trade practices along the supply chain, and to take proactive trade control measures to prevent frequent ups and downs in domestic prices. In addition, it should provide for incentives for developing efficient supply chains and for the cultivation of onions in the regions that have agronomic potential but it has remained underexploited due to one or the other constraint. Social implications Excessive volatility in food prices impacts farmers, consumers, processors, and traders and even political system. It may distort production and investment decisions of farmers and intermediaries on the value chains, leading to inefficient allocation of resources. The poor consumers may be forced to reduce food and non-food productive expenditures. If persists for a longer period, it may lead to political instability too. Originality/value Several studies have analyzed volatility in food prices and causes thereof. However, rarely any of these has examined volatility in prices of perishable high-value food commodities. This paper is an attempt toward filling this gap.

Assessing the market power of millers and wholesalers in the Bangladesh rice sector

“…In the Australian grains and oilseeds sectors, O'Donnell et al (2007) found that processors exercise monopoly and oligopsony toward consumers and producers. The study of Birthal et al (2019) concluded that the downstream market power of onion production is one of the major factors causing high price volatility in the onion market in India Yusuf and Trondsen (2014),. on the other hand, revealed that market power, in forms of access barriers, weakened competition in the Indonesian crab industry.…”

Returns and volatility spillover between food prices and exchange rate in Nigeria

“…At the domestic market level, some of the price setting factors include the timing of harvest, market distance and volume of sales (Yan et al, 2017). In an investigation of the causes of food price volatility, Birthal et al (2019) found production shocks, seasonality in production and market arrivals, internal trade, export policies and intermediaries market power as factors responsible for volatility of onion prices in India.…”

Understanding regional variation in fish prices: evidence from a developing economy

“…Therefore, making food affordable is an important issue for such regions. Looking at general food commodities, Birthal et al (2019) argue that volatility in onion prices in India can have the effect of reduced consumption among the poor. Similarly, in Bangladesh, it was found that increasing commodity prices led smallholder households to reduce consumption of “high food value-enriched non-cereal” food items (Mottaleb and Rahut, 2018).…”