Onion Shortage Seen Worsening in India as Rain Delays Crop

Onion prices in India may extend a record rally as heavy monsoon rains delay harvests and worsen a shortage, potentially accelerating food inflation in Asia’s third-largest economy.

Retail prices of the vegetable used in everything from soups to curries soared to 70 rupees ($1.13) a kilogram (2.2 pounds) in New Delhi this week from 20 rupees three months earlier, according to the Consumer Affairs Ministry. Prices may increase further as farmers are unable to pick the crop due to monsoon rains, said C.B. Holkar, a director at the National Agricultural Cooperative Marketing Federation of India Ltd.

Surging onion prices may fuel inflation and limit the Reserve Bank of India’s room to ease interest rates to revive the weakest economic growth in a decade. Prime Minister Manmohan Singh needs to curb food prices and stem a decline in the rupee to boost the prospects of his Congress party in state polls later this year and the general elections due by May. The central bank today unexpectedly raised the repurchase rate to 7.5 percent from 7.25 percent to damp inflation.

“Rise in onion prices has always been a very sensitive issue,” said P.N. Vasanti, director of New Delhi-based Centre for Media Studies. “It has affected the poorest of the poor the most. It has become an electoral issue earlier.”

Food prices climbed 18.2 percent in August from a year earlier, with onion costs surging 245 percent, official data showed Sept. 16. The economy expanded at the slowest pace since 2003 in the year ended March as investment fell and consumer spending moderated. HSBC Holdings Plc and Goldman Sachs Group Inc. cut growth estimates for India to 4 percent in 2013-2014.

Import Bids

Singh’s government last month asked state-run trading company PEC Ltd. and Nafed to import onions to control prices. PEC has yet to float a tender after asking suppliers to register with it, said Ravi Kumar, a company director. Nafed canceled a tender to import as there was a lone bidder, said S. Biswas, a general manager at the New Delhi-based company.

“The government is very serious about the impact of rising imports on the current-account deficit,” said Arun Singh, an economist at Dun & Bradstreet Information Services India Pvt. in Mumbai. “That probably is the reason it’s delaying decision on onion imports.”

Singh’s government has raised taxes on gold imports and eased curbs on investment from abroad to bolster the economy. It is seeking to cap current-account deficit to about $70 billion in the fiscal year ending March 2014 from a record $87.8 billion in the previous 12-month period.

Political Factor

Political parties have lost elections in India over the cost of onion, the key ingredient used to make spicy masala that goes into dishes from curries to biriyani. Former Prime Minister Indira Gandhi swept back into power after a gap of three years in 1980 by turning the price of onions into a populist rallying cry. The Bharatiya Janata Party lost the state election in Delhi in 1998 as the government could not control onion prices.

“We have reduced the consumption of onion as it is the only option with such high prices,” said Subhashish Ghosh, a 31-year-old marketing executive living in New Delhi since 2001. “If vegetables are beyond our reach, how can we think of eating proteins or making it available to our children. I am not satisfied with the government policy to control prices.”

India’s wholesale-price index rose 6.1 percent in August, the most in six months, according to the latest government data. The RBI predicts inflation will be around 5.5 percent in the fiscal year through March 2014. There is no room for complacency on inflation and “the Reserve Bank will closely and continuously monitor the evolving growth-inflation dynamics with a readiness to act pre-emptively, as necessary,” the central bank said today.

Source of Nutrition

The Congress may be defeated in elections to Madhya Pradesh, Rajasthan and Chhattisgarh states later this year, while it may struggle to retain power in New Delhi, according to an opinion poll released by Times Now television channel and C-Voter polling agency Sept. 18.

The bulbous flavonoid-rich root may be the only source of nutrition for the poor who use it as a raw side dish with flattened bread in many of the northern states from Rajasthan to Bihar. Of the 1.2 billion people in the country, about two-thirds live on less than $2 a day, according to the World Bank.

“Onion prices may go up further as stockpiles in Maharashtra are fast depleting,” Holkar said in a phone interview today. “Even some quantities imported from Afghanistan have not been able to lower prices.”

Export Curbs

The government yesterday raised the minimum export price of onions to $900 a ton from $650 to boost domestic supplies. Arrivals may increase from the third week of October as rains in producing areas are hindering arrivals, Agriculture Minister Sharad Pawar said yesterday.

Unusually heavy monsoon rainfall this month has delayed harvest in Maharashtra, Andhra Pradesh and Karnataka states, which account for about 50 percent of the nation’s production, Holkar said. Prices may begin to ease from middle of next month with the arrival of fresh crops, he said.

India is the world’s second-largest producer of onions after China. Yet, it has the third-lowest yield per hectare among the 20 biggest producers, according to the Bangalore-based Institute of Social and Economic Change. The report says that collusion among traders and the poor state of India’s infrastructure act to push up prices.

Production was 16.65 million tons in 2012-2013, down 4.8 percent, from 17.5 million tons a year earlier, according to data from the Agriculture Ministry.

To contact the reporters on this story: Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net; Kartik Goyal in New Delhi at kgoyal@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net; James Poole at jpoole4@bloomberg.net

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