This document provides an assessment of the onion market in India. It discusses the following key points in 3 sentences: The onion industry in India is the second largest producer globally but lags in productivity due to factors like poor irrigation, seeds, and storage facilities. The market structure is dominated by traders who control storage, sorting, and pricing, while small farmers have little influence. Several Indian states like Karnataka and Maharashtra are analyzed and found to have inadequate agricultural market infrastructure and regulations that allow trader monopolies.

1. ASSESSMEN
T OF ONION
MARKET
IN INDIA
11 May 2014
Nakul Pandya 2012A4PS154U
Subramanian Aiyer
2012A1PS021U
Vineet Nekkanti 2012A4PS045U

2. Contents
2
 Overview of Onion Industry in India
 Market Structure of Onion in India
 Conclusions & Policy Recommendations
 References

3. Overview of Onion Industry in
India
INTRODUCTION
 Grown over western, northern and majorly in southern parts of India.
 Second largest producer in the world.
 Lags behind productivity/ yield :
 poor irrigation facilities
 use of local variety seeds
 poor economic background of farmers
 lack of use of improved method of cultivation, chemical fertilizers and pesticide
 absence of good scientific storage facilities.
3

4. 4
Overview of Onion Industry in
India

5. 5
EXPORTS OF ONION FROM INDIA
 Exports have fetched India Economic Stability.
 Progressive Increase with 512,000 MT in 1996-97 to 1,873,000
MT during 2009-10.
Overview of Onion Industry in
India

6. 6
 Exports regulated and permitted only through designated
canalizing agencies.
 National Agricultural Cooperative Marketing Federation
(NAFED) - sole agency for exports of onion from India.
 They are subject to wide fluctuations from based on yearly
production, nation’s internal requirement, export restrictions etc.
 NAFED – protect domestic consumers, producers from keeping
unduly high charges.
Overview of Onion Industry in
India

7. 7
PRICE SUPPORT PROGRAMMES
 NAFED intervenes domestic marketing when price reach
uneconomical level.
 Prices decided on basis of production costs.
 In External Trading - market trends, world prices and domestic
prices, and margins are considered for arriving at the MEP of
onion.
 NAFED works in collaboration with DGFT and GoI,
Government allows agencies to enter canalized export.
Overview of Onion Industry in
India

8. 8
Analysis of Onion Arrival and Prices
Trend of Onion Arrivals (Supply) and Prices are studied using three
prime indicators :
1. Seasonal Index
2. Volatility
3. Wholesale and Retail Prices
Overview of Onion Industry in
India

9. 9
SEASONAL INDEX
 Worked out using Coefficient of Variation of prices.
 Higher the arrival = Higher Demand, and sometimes high
demand experiences high prices (paradoxical situation).
 Presence of exploitative elements hindering the competition.
 Coefficient of correlation of daily
arrivals and prices in major markets
support to this paradoxical situation.
Overview of Onion Industry in
India

10. 10
Volatility in Onion Prices
 “Normal volatility” - requisite for competitive market functioning.
 Efficiency of the price system breaks down when price
movements become uncertain, ultimately reaches the point of
redundancy = “extreme volatility/ crisis”.
 Volatility : 2 concepts
 Variability – Overall price movements
 Uncertainty – Unpredicted price movements or Shocks
 Shocks surpass critical size and persist at those levels, traditional
coping mechanisms fail, state of crisis.
Overview of Onion Industry in
India

11. 11
Overview of Onion Industry in
India

12. 12
Wholesale and Retail Prices
 Wholesale and Retail prices affect nation’s market directly.
 Case of December 2010 : Without the markup of retailers - not
even 40 Rs/Kg.
 Retailers to be blamed – no price reduction even after wholesale
price decline. Profit margin range 60-110%.
 Traders & retailers exploit the crisis situation for own benefits.
 Even GoI didn’t ban traders/ retailers form Export during crisis.
 Negligence of Government, late MEP hike.
Overview of Onion Industry in
India

13. 13
Overview of Onion Industry in
India

14. 14
Conclusions
 Export fluctuation – Balance of Trade need to be maintained.
 Market intermediates, black marketing and hoarding affects
pricing decisions.
 Extreme Volatility causes crisis.
 Unexpected hike in prices also due to high profit margins of
wholesalers and retailers.
 India still maintains its top position in production, export of
onion.
Overview of Onion Industry in
India

15. Market Structure of Onion
15
 Agricultural marketing - operated by both private traders and
government agencies.
 Implementation of Agricultural Produce Marketing Committee
(APMC) Act to regulate markets.
sale through auction method & reliable weighing,
standardized market charges,
payment of cash to farmers without undue deductions
reduction in physical losses of produce

16. Marketing Channel
 The main purpose of regulated markets is to create conditions
for sale which are conducive for all market functionaries
involved in marketing.
16

17. Market Structure of Onion
 Small holding of farmers: Land holding of onion growers is very low. Most of
the farmers own less land and due to unfavorable weather conditions. Such
small availability implies that the individual farmers have a little say in the final
price of the onion in the market.
 Marketing produce as per grade necessity: Different regions and markets of
India have different requirements of Onion
Eastern Indian markets prefer small sized onion,
North and West Indian markets prefer bigger sized onion.
Traders pool the produce for sorting / grading at their pack houses and sends
different grades to different markets all over India depending upon the grade
requirements and price at a particular market.
Lack of trading expertise & market knowledge has prevented most of the
farmers to make a significant dent in onion trading. So, most of the trading
is in private hands.
17

18.  Local markets act as a reference market to small growers: Farmers
generally take reference of the local market’s rates, while traders
compare rates of all markets, including major distant and export market
and then decide where to send their produce of a particular grade. This
brings greater profits to them.
 Concentration of large storage capacities with traders:- Large
storage capacities for onion have remained with private traders and that
too in Nasik belt. Traders can buy the whole stored lots and provide
sorted / graded produce to retailers or buyers as per their requirement at
their risk and cost.
18
Market Structure of Onion

19.  Vertical Integration of various market functions by onion traders:-
Traders play multiple roles- creates monopolistic conditions. This lack of
capacity to conduct multiple roles prevents farmers &their organizations
to compete with traders.
 Existence of established traders and barrier to new entry: In
important onion markets, the commission agents and the traders dealing
with onion are well established and have an average experience of 20
years. This shows the lack of new entries in the market as well as
domination of the established market players.
19
Market Structure of Onion

20. Agricultural Marketing and Market
Infrastructure in Karnataka
 Agricultural marketing system at the primary level in Karnataka
involves four broad marketing channels, viz.,
1. direct to consumers;
2. through private wholesalers and retailers;
3. through public agencies (regulated markets) or cooperatives
4. through processors.
20

21. Reforms After APMC in
Karnataka
 A few changes have occurred in the agricultural marketing
sector after the creation of marketing institutions and the
infrastructure. These include:
1. Increase in the market arrivals as per cent to total output;
2. Reduction in the market inefficiencies in terms of
unauthorized charges and irrational grading.
3. Dissemination of market information at the regulated
market yard.
4. Storage facilities and place to stay created for the farmers.
21

22. Market Regulations
 The Karnataka (APMC) Act follows -Government of India model act
 The Act has clear provisions about bringing fairness in :-
a) the sale of agricultural produce,
b) providing marketing facilities,
c) dispute settlements and utilizing market funds for providing in-house
infrastructural facilities
d) making available credit advances to farmers.
 The Market Committees govern marketing practices in the regulated markets and
have jurisdiction over the entire market area.
 The Committee grants or renews the licenses for use of any place in the market
area .It has the power to levy market fee on the traders and also impose penalty
where a trader fails to pay.
22

23.  Inadequacy of market infrastructure - main reason for market
imperfection.
 Efficient transport-Marketable surplus reaches the mkts.
 Have to create adequate marketing infrastructure in rural areas.
 Investments from private sources is required & Govt. must provide
certain incentives.
 So far the case of Karnataka is concerned- inadequate to handle the
situation (agro infrastructure)squarely.
 Density of mkts increasing from 1997-2004 but is less in 2009-10.
23
Present Status of Infrastructure in Karnataka

24. Markets in Karnataka
24

25. Status of Karnataka
 The Department currently regulates 146 main markets and 355 sub-
markets in the State and handles a turnover of Rs.17, 796.41 crores of
agricultural produce (table 3.1 and annexure table 3.1). These
markets have their own grading centers.
 But, despite of these, the department has not been successful to
eliminate all the imperfections existed in the markets which include:-
1. Inefficiency in grading and packaging;
2. High-handedness of Agricultural Produce Market Committees (APMCs)
in providing marketing services;
3. Creating conditions such that the farmer cannot go back from the market
yard without selling the product.
25

26. Regulated Markets in
Karnataka26

27. Agricultural Marketing and Market
Infrastructure in Maharashtra
 As per the Model Act circulated by GoI, Maharashtra has made
suitable amendments in its Maharashtra Agricultural Produce
Marketing (Regulation) Act, 1963.
 Amended the Act in June 2007. In the amended Act, the concept of
development was introduced along with regulation. The following are
the important amendments made in the Act:
27

28. Introduction of greater
competition
 Agricultural markets in the state suffered due to dominance of certain market
functionaries.
 Maharashtra APMC 1963 Act -banned the farmers to enter into direct contact
with the processors/manufacturers located outside the market area. The
commodity sell was channelized through regulated markets and it led to
inefficient market outcomes.
 Amended Act 2007- Rules framed to allow greater freedom to farmers to sale
their produce directly to consumers, processors or manufacturers.
 Now farmers can deal with any licensed person, partnership firm, co-
operative society, NGO or companies who have established a private market
as per stipulated conditions of DMI (Directorate of Marketing and
Inspection).
28

29. Contract Farming
 Contract farming -viable solutions to the problems of agricultural marketing in
India
 An amendment in APMC Act 2007 makes provision for contract farming. Under
this provision, farmers are allowed to make advance contracts under no
compulsion with known buyer on the delivery of certain commodity at specified
price, location and on the maturity of crop.
 This in some extent is expected to bring an end to monopolies of organized traders
and commission agents currently operating in the regulated markets and improve
overall market efficiency.
29

30. Present Status of Infrastructure in Maharashtra
 In Maharashtra, the agricultural marketing is more or less
entirely in the hands of the middle men, link agents, subagents
& processors.
 Situation in rural areas of Maharashtra in this respect is far from
satisfactory. Many products received low prices for their
produce. At the end of March 2010, there were 3500 rural
markets scattered across the State .In case of regulated markets,
the state does not find itself well placed (Annexure Table 3.2).
30

31. Regulated Markets in India
31

32. Present Status of Infrastructure in
Maharashtra
 Second highest number of regulated mkts
 It is varies from 603 kilometer for Mumbai to 4804 kilometer
for Gadchiroli district.
 Mkts. not equipped with basic facilities like platforms for sale
and auction, electricity, drinking water, link roads, trader’s
premises, facilities for post-harvest management etc.
 These indicate that there is a strong case for increased
investment in rural infrastructure in the relatively backward
region.
32

33. Regulated Markets in
Maharashtra33

34. Conclusions
Barriers on new entrants and the institutional failures s exist in markets.
Hardly any attention paid to operations in the market.
Agricultural marketing is in the hands of the intermediate market
functionaries.
Agricultural marketing and the rural infrastructure is in bad shape. Need to
active initiatives for greater capital formations in this sector, either from
public or private sector.
34

35. Conclusions
35
 Reasons for onion trade unilaterally dictated by traders and not
farmers
 Small-scale farm size for onion growers.
 Unfavorable weather conditions.
 Minimal role in price formation.
 Lack of trading expertise , market knowledge and risk bearing
capacity.

36. Conclusions
36
 Taking only local market rates as references.
 Lack of capacity to conduct multiple roles (wholesaler and
commission agent).
 Existence of established traders and barrier to the new entries.
 Less number of active traders during the slack season.

37. Policy Recommendations
37
 Entry of new commission agents and traders.
 Issuing new licenses , providing space for shops , storages.
 Provide better infrastructural facilities and licenses for creating
competitive environment.
 Stringent measures on those who indulge in intentional
activities to create artificial demand situation.

38. Policy Recommendations
38
 Mandate wholesale from any secret bidding.
 Avoid collusion between traders.
 Avoid involvement of APMC officials in the auctioning
process.
 Discourage export ban on onion coupled with fixation of MEP.
 Effective use of charges collected from the APMCs.
 Reduce actors involved in the market , to reduce marketing
costs.
 Improve the welfare of all actors involved in market channel.

39. Policy Recommendations
39
 Policies for development and benefits of farmers and stake
holders.
 Direct procurement of onion from producers by NAFED.
 Promote direct sales of framers produce to wholesaler.
 Link small farmers produce to retail chains.
 Initiate steps to foster the growth of credit cooperatives in
agricultural sectors.

40. References
40
http://www.cci.gov.in/images/media/completed/AO.pdf
http://timesofindia.indiatimes.com/india/Onion-crisis-to-last-2-3-weeks-Pawar/articleshow/24618193.cms
http://kkasturi.blogspot.ae/2013/12/indias-exploitative-horticultural.html
http://gigaom.com/2013/10/14/premise-data-is-trying-to-revitalize-economic-data-and-android-is-playing-a-big-role/
www.wikipedia.org
Competitive Assessment of Onion Markets in India, A report by Agricultural Development and Rural Transformation
Centre Institute for Social and Economic Change, Competition Commission of India.

41. 41
 Following policies are important to avoid the December 2010
type of volatile situation in future-
Better system for forecasting total production.
Proper planning of export to avoid onion price hike like
in 2009-2010.
Establishment of National Market Information
System(price observatory).
 Reduce market imperfections.
Policy Recommendations

42. 42