Why Sri Lankan crisis is making Indian onion sellers sweat

Onion sellers are finding it hard to fight back their tears. India, which is the second-largest onion producer in the world, has seen a steady decline in exports, of almost 40%, in six years. Traders allege that the traditional international markets, which leaned heavily on the Indian onion for its consumption, have started buying from other more reliable and stable sources due to frequent bans on onion exports imposed by the Indian government. More worryingly, the worsening economic crisis in Sri Lanka, which accounts for one-fourth of India's onion exports, has further dealt a blow to local onion growers and traders. According to them, the shipments to Sri Lanka have been dwindling since October 2021 with payments of Indian exporters freezing due to the shortage of US dollars in the island nation. medium91521371“Getting payment from our counterparts in Sri Lanka has now become challenging,” says Manoj Jain, an onion exporter based in Maharashtra’s Lasalgaon. “It is not that they are bankrupt. It’s that their government does not have enough foreign currency required to carry out the trade.” This effect is being felt particularly in Maharashtra, which accounts for the largest onion production in the country, with a share of over 25%. Due to intense heat in the summer season, state onion exporters require refrigerated containers to keep their stock in fresh condition, which increases the transportation cost of exports. The paucity of rail rakes for interstate movement of onions, and the preference being presently given to wheat and coal over it due to massive shortages, has made matters worse for onion transportation from Maharashtra, especially to the Bangladesh border.“The cost of transport from Maharashtra to Kolkata is Rs 7 per kg by road, while it is about Rs 2.50 per kg by railway,” adds Jain. Moreover, today exporters are plagued by not only the domestic freight rates, but also the high ocean freight rates. medium91534735According to a Crisil Research report on Freight Rate Signs, released on May 2, transporters have passed on an increase in diesel prices by increasing freight rates. “Onion is the only vegetable which does not receive transport subsidies given by the central government to promote exports,” says Danish Shah, an onion exporter. “The freight costs are now double the cost of the onion.”On January 1, 2021, India had introduced a new scheme called Remission of Duties and Taxes on Export Products (RoDTEP). Exporters say that onions were not included in this scheme as there was a ban on its export at the time of the launch of the scheme. Before it, the government used to incentivise onion exports with subsidies during periods of glut in the domestic market. medium91537777Getting a move on Onion is a short-duration, less water-consuming commercial crop. This quality of the vegetable boosted its popularity among small and rainfed farmers even among non-traditional states of the country. However, having reliable export destinations is necessary to support the domestic markets during a glut. “This year, for instance, we have a surplus of onions as the yield was better,” says Ajit Shah, president, Onion Exporters’ Association of India. “But prices are ruling downwards.” This is why the average monthly price for the month of April 2022 at the Pimpalgaon wholesale market in Nashik district, the biggest wholesale market of onions in the country, is going at Rs 6/kg — about 2.7% lower than what it sold in April last year at Rs 7.66/kg. According to the data with the Agricultural and Processed Food Export Development Authority, India's onion exports had grown to record 24 lakh tonnes in 2016-17 and again hit 21 lakh tonnes in 2018-19. In the intervening year of 2017-18, the exports had dived to 15.88 lakh tonnes because of the sky-high onion prices in the domestic market due to vagaries of weather. medium91534715India banned export of onions for five months from October 2019 to February 2020 after which Covid hit business. India still managed to export 11.50 lakh tonnes of onions. In the 2020-21 fiscal, India's onion exports stood at 15.78 lakh tonnes, during just 8.5 months, as the exports were banned for 3.5 months from September 14 till December 31. During the 11 months from April 2021 to February 2022, India exported 13.23 lakh tonnes of onions, which is likely to increase by another 1 lakh tonnes taking March into account. “Without Covid-related trade disruptions, onion exports in the 2021-22 fiscal should have been close to the earlier normal of 20 lakh tonnes to 24 lakh tonnes," adds Danish Shah. “However, the onion export of 2021-22 is expected to be just around 14-15 lakh tonnes.” medium91537808Though Indian onion commands a premium in the international markets, frequent changes in export policy by the central government in recent years to control domestic prices has disturbed onion export business of the country. India had banned onion export for a period of four months between September 29, 2019, and March 2, 2020. After having kept it open for less than six months, the central government again banned onion exports from September 14, 2020, till December 31, 2020.Earlier, during 2017 and 2018, the central government had imposed a minimum export price (MEP) on onion exports to curb the export volumes. MEP is the floor price below which traders cannot export a commodity. “Frequent bans on onion exports resulted in India losing its reputation in the international market as a reliable supplier of onions,” says Shah. “Buyers shifted to other countries to meet their requirements. We lost our markets, which were established over many decades.”According to him, while India's share in traditional markets like Malaysia, Indonesia, The Philippines, Singapore, Europe and Sri Lanka has declined from 80% to 50%, countries like Pakistan and Egypt have taken up India's share in these markets. Even in Bangladesh, the top importer of Indian onions, China and a few other countries have made inroads with their onions. To reduce its dependence on Indian onions, the government of Bangladesh has started promoting local cultivation of onions. Moreover, it has placed an import tax of around 2.80 taka (Rs 2.48) per kg.Considering that India’s neighbours like Bangladesh, Sri Lanka and Nepal are among the top five export destinations of Indian onion, traders think that India should have trade in Indian rupee with the Saarc neighbours. “It would be prudent for the Indian government to negotiate for trade in Indian rupees with Saarc countries,” adds Jain.