Indian onion prices to pinch for longer on supply squeeze

A ban on onion exports and duty free imports are unlikely to bring prices down much in India and traders say prices may remain high for a year after damage to new plantings, pressuring a government trying to calm food inflation. Onions are base ingredients for almost all Indian dishes.
Soaring prices of the vegetable have helped dislodge Indian state governments in the past, and rising food costs often spark street protests in a country where over 40 percent of the 1.2 billion population lives on under $1.25 per day. "Arrivals in key spot markets are nearly 35 percent lower compared to last year. This is mainly due to damage caused by unseasonal rains," R.P. Gupta, director at the National Horticultural Research and Development Foundation, told Reuters.
Unseasonal rains during October-November, when farmers start harvesting of the summer-sown onion crop, caused severe damage in the top producing western state of Maharashtra and other major producing states like Andhra Pradesh, Karnataka and Gujarat. Average onion prices at the country's largest wholesale onion trading hub in Lasalgaon, in western Maharashtra state, jumped to 3,800 rupees per 100 kg on December 20, showing a 346 percent rise within 20 days.
They have fallen nearly 50 percent after the government banned exports and allowed duty free imports earlier this week, but are still up a whopping 120 percent since the beginning of the month. In India farmers usually respond to higher onion prices by raising acreage, bringing down prices sharply. However, this year, unseasonal rains also affected seedlings of winter-sown onion crop, which will ultimately lead to lower production during winter season as well.
"Unseasonal rains have affected seedlings of winter-sown crop. Farmers have planted onion on a lower area. Obviously this year production from winter season crop would be lower," said Vilas Bhujbal, a trader based in Pune, Maharashtra. Indian farmers prepare seedlings of onion on beds and later transplant them into the fields. Farm Minister Sharad Pawar earlier this week said the supply situation will improve in next three weeks and pries will drop, and on Friday, a key government planner said the price wouldn't have an impact on the inflation outlook.
Food inflation is currently running at more than 12 percent. But traders said a lower crop during summer and winter may keep prices high for a longer time - maybe for a year. "Exports ban and duty free imports news hurt sentiments. For the short term they will weigh on prices, but we need supplies to cool the prices," said Nitin Jain, a trader based in Lasalgaon spot market in Maharashtra.
India exported 1.158 million tonnes of onions in the April-November period, down 16.3 percent on year as the government kept the minimum export price higher than prevailing international prices to augment supplies in the local market. India is banking on its neighbour for supplies, but the flood ravaged country is unlikely to help much.