Back in January, while commenting on the rabi crop projections for FY19, SBP’s State of the Economy report had noted that “anecdotal evidence suggests that minor crops perform better when production of major crops falls. The below par performance of the major crops in the ongoing year may revitalize the minor crops as reduced area may be substituted for minor crops. Lower prices of many perishable food items in the domestic markets during H1-FY19 lend weight to this hypothesis”.
SBP’s hypothesis, of course, was not without basis. Six-month average onion prices; for example, had fallen by nearly half between 1HFY18 to 1HFY19. Considering that onion harvest usually begins in late winter (February), prices peak out by late September, kissing bottom in March.
Instead, downward trending prices between Sep-18 to Jan-19, averaging at Rs32, indicated optimistic crop outlook for upcoming harvest season. After all, cultivated area had recorded a modest improvement despite record-high acreage from previous year, with healthy projected yield of 14 tons per hectare thanks to off-monsoon late rainfall.
Yet, come harvest time in Mar-19, and all predictions came to naught. Prices began to climb from ebb of Rs29 per kg and have closed last week of September at Rs75.
What happened? Official statistics indicate that Pakistan’s onion economy is mostly dependent on domestic output, with negligible imports, averaging no more than 4 percent of local production. Thus, no amount of inflationary expectation and seasonal variations can account for price increasing 2.5 times within six months at a time of highest-ever domestic output.
The interesting story, however, comes from the demand side. Net of exports (also negligible), per capita availability of onion comes close to 9.5 kilos per annum. Since no recent comprehensive study of domestic consumption patterns exist, availability based on official statistics may serve as useful proxy for annual demand.
However, a 2004 study by Punjab Agriculture Marketing Information Service offers some insight. The study places five-year average domestic per capita consumption at 20 kilos per annum, ranking Pakistan at 63rd in per global per capita consumption.
Secondary research puts average global per capita consumption at 10.8kg, with neighbouring India touching 13.5kg per person. Given this context, it is a mystery as to how domestic consumption has fallen to less than half in the past 15 years, coming in lower than even global and regional averages.
Unless, one appeals to unofficial trading channels. Recall that February 2019 also recorded another watershed moment, when official trade with neighbouring India came to naught in the aftermath of Balakot strikes.
Granted that onion trade with the perpetual ‘frenemy’, as reflected by official statistics, has historically been insignificant. But background conversations with traders from wholesale markets of Karachi indicate that quantum of smuggled onion is several times the size of official imports.
Moreover, a review of news about the teary-eye vegetable from the neighbouring land shows that prices have also peaked in Haryana and Maharashtra by mid-September, nearing INR 60 per kg. Going by that number and exchange rate of 2.22 Pak rupees per INR, the peak in domestic market - even if it has come on the back of lower output in India and resultantly lower quantum of smuggling – is still quite modest.
As water availability improves for the upcoming rabi season, chances are that onion prices will begin to stabilize by year end once situation of ongoing year cultivation becomes clear. However, the real mystery raised by purported dip in smuggled trade from India is of Pakistan’s actual per capita demand.For actual per capita consumption to still be close to the 20kg official estimate from 2004, the quantum of smuggled volume from India and Afghanistan will have to be equal to official domestic production. That is hard to fathom. But then the peak in retail prices at a time of historic domestic output is also equally puzzling.