India’s food inflation has layers. The onion is only the first

Snigdha Sharma (0:00)

On the 26th of May, onion farmers in Maharashtra's Nasik district gathered on the Mumbai-Agra highway.

Some wore garlands made of onions. They tried to block the traffic, protesting because the onions that they had spent months growing was selling just for 4 to 6 rupees a kilo. They wanted the government to guarantee them a better price, saying what they were earning was not enough to recover their costs.

Less than 5 months later now, onions are driving India's food inflation. Data released on the 12th of October on Monday, showed that food inflation rose 7.7% in September, up from about 6% in August. Onion prices were more than twice as high as a year earlier. Ginger up by nearly 63% and garlic almost 55%.

If you look at just a year ago, food prices were falling, which is a part of why this year's rise also looks so steep.

Even so, food inflation has climbed every single month this year and rural households are taking the hottest hit with food inflation in villages above 8%. Plus, the festive season is likely to add to the pressure as the demand picks up. Other things are adding to it as well. Chrysler, the global insights-driven analytics company, points to tight stocks from the spring rabi crop and to a late arrival of fresh kareef onions after a very dry June.

As we know, the monsoon ended well below normal, and staples and edible oils have also become durer. We have talked about this on previous episodes of Daybreak that I will link to the show notes of this one. So, the onions that we are buying from shops right now come from that same spring harvest, the one that farmers were selling in May. And by the government's own estimate, India grew almost as much onions in the crop year that ended in June as the year before. The government also keeps an onion stockpile for exactly this kind of a price rise. It began buying in mid-May during the glut and then started selling those onions at 35 rupees a kilo in late August. Onion prices still jumped from about 49% in August to 108% in September. So, here's the update. Food inflation is back with a bang. And the onion may be the clearest way to understand why it is so hard to keep India's kitchen affordable. Welcome to Daybreak, a business podcast from The Ken. I'm your host, Snigdha Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghese and I will come to you with one business story that's worth understanding and worth your time. Today is Thursday, the 15th of October.

India's onion year runs on two main harvests, the Rabi crop, which is harvested between March and May and is stored and carries the market through the summer. Prices tend to rise between September and December when those stocks are newly used up and the kharif crop has not reached the market yet.

This year, that gap opened wider than usual. Chrysler says that Rabi stocks were tight after a 5-6% fall in production, even though the government's estimate for the full year barely moved. June rainfall was also 40% below normal, which delayed kharif planting and pushed back fresh arrivals.

Part of the reason goes back to that highway in May. Farmers had said that the prices on offer would not even cover their input costs and loan repayments, and a farmer under that kind of pressure can rarely afford to keep onions in storage for months. Consumer Affairs Secretary Nidhi Khare had also said that a part of the Rabi crop was damaged by untimely rain at harvest season. The government did see the squeeze coming. When it began releasing buffer onions in August, it said that the aim was to moderate seasonal price pressures. But it had set its buffer target at 2 lakh tonnes, citing a comfortable production outlook. And by late August, it had bought about 1.2 lakh tonnes of onions. Now, the thing is, getting those onions to shoppers also takes time. In the first 10 days of subsidized sales, about 4,000 tonnes were sold across 17 cities, and Kare said that prices had dipped slightly. Now, here's the thing about a buffer this size. It can ease prices where it arrives, while supply keeps tightening everywhere else. There is also a harder balance to strike. The government has to buy when prices are low and sell when they rise, without hurting the farmers it bought them from.

When the release was announced in August, the average price in Lasalgaon fell by about 450 rupees a quintal and growers were worried about what that would do to their earnings. Relief should come as the new crop arrives. Chrysler expects prices to ease towards the end of this month, October, though kharif onions typically arrive in larger volumes in November and December.