India onion prices fuel food inflation

Onion prices in India hit a two-and-a-half-year high on Wednesday riding a supply squeeze due to last year’s drought in key growing areas, and traders expect prices to spiral up further in a month as demand remains strong due to Ramadan.

Onion is a common ingredient in many Indian dishes. Soaring prices of the vegetable have helped dislodge the state governments in the past, and rising food costs often spark street protests in a country where nearly a third of the 1.2 billion population live on under $1.25 (U.S.) per day.

The average prices at Lasalgaon, India’s largest wholesale onion market in the western state of Maharashtra, rose to 2,411 rupees per 100 kg (C$0.21/lb.) on Wednesday, the highest since January 2011.

The wholesale price has risen about 50 per cent in a month, although retail prices have more than doubled in some metros like Mumbai to 30 rupees per kg.

“Last year’s drought curtailed production in Maharashtra. The supply shortfall is hardening prices and we can see further upside in coming weeks,” said Changdev Holkar, a director at the National Agricultural Co-operative Marketing Federation.

During the Muslim fasting month of Ramadan, which started this year on July 9, consumption of onions rises because it is used in making traditional cuisine.

Maharashtra is the country’s top onion producer. In 2012, it was hit by the worst drought in more than four decades, curbing the area planted with onions and trimming yields. The state’s output fell nearly 16 per cent to 4.76 million tonnes in 2012/13.

Daily supplies in the Lasalgaon spot market have come down to around 1,000 tonnes compared to around 1,800 tonnes during the same time last year, said an official at the National Horticultural Research and Development Foundation.

Food inflation accelerated for the second month in a row in June, touching 9.74 per cent as vegetable prices shot up, helping retail inflation rise to 9.87 per cent, snapping a three-month easing trend.

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