Don’t cry over onion prices: Here's how to mitigate seasonal price hikes

Here's a simple solution to the problem of expensive onions: replace them with dried onions for cooking. This week, dried (dehydrated) onions were available online at almost a fifth of the all-India average retail price of fresh onions. The price is likely to be even lower at your nearest grocery store.

Dried onion is a win-win. It saves money, of course. It saves cooking time by at least 10%. No need to peel in the sweltering heat. When cooked, dried onion is as good as fresh. Restaurants shift to dried onion when fresh onion prices increase. The economics of dried onion is so evident that restaurants can't ignore the savings.

So, dear reader, it is quite likely that your favourite cuisine at your favourite restaurant was made from dried onion. But, of course, you did not guess it because when cooked, dried onion brings the same aroma and taste as fresh onion.

Onion prices, just like prices of other goods, depend on demand and supply. When the price of fresh onion increases, if consumers shift en masse to less-expensive dried onion in their cooking, the demand will go down, and so will the price. In the long run, when wholesalers realise that the consumer has figured out the onion market, they will find that hoarding the succulent bulb is not profitable. Consumers need to adjust demand to meet the price, and the seasonal rollercoaster of onion prices will become history.

People also eat raw onion in a salad, which cannot be replaced with dried onion. However, that is a small proportion of the overall onion demand and plays a minor role in determining price.

Do not expect the government - this or any future one - to solve the problem of price fluctuations. Expensive onion is a vote-killer. So, GoI has a vested interest, besides increasing public welfare, in keeping the price of onion low and stable.

Alas, most of what it does is counterproductive. Wholesale traders can perfectly guess the government's next move, and they begin to hoard onion stocks in advance, further reducing supply and increasing the price. Worse, governmental interventions have consequences that bring distortions in onion-cropping patterns, influencing onion production and price the following year.

When GoI intervenes in the onion trade market by banning exports or increasing export duty, it disincentivises its production and sends signals to farmers that have long-term effects. GoI has often tried to influence onion prices with imports through state agencies. But even that has often been futile.

For instance, in 2019, when the price of the vegetable skyrocketed to ₹160/kg, the state-owned trading firm MMTC imported 14,000 tonnes. But by the time the imported onion arrived in January 2020, the price of onion in major mandis had slumped to ₹20-25/kg. Naturally, no state government would buy onion from MMTC at ₹50/kg. In the end, GoI sold the imported onion at highly subsidised prices to avoid rotting at the ports.

So, the best thing the government can do to stabilise onion prices is to:

Incentivise dehydration of onion.

Improve availability of dried onions in gov-run retail stores and Mother Dairy outlets.

Increase awareness of dried onion through advertising.

The seasonal fluctuations in the price of onion in India are baffling. Globalisation, falling transportation costs, cold storage and food processing have reduced seasonal fluctuations in the prices of most perishable fruit and vegetables. In fact, they have eliminated seasonality from availability of perishable fruit and vegetables in most countries. However, the Indian onion market remains oblivious to this development.

Onion is 90% water. Fresh onion has a life of 1-3 months. Dehydrated onions in sealed packs can be stored for at least two years. Once outside the packet, dried onion has a life of at least 6 months. India is a major producer of dried onion, but 85% of the production gets exported.

The economics of onion makes it an ideal vegetable to be dried and stored. However, its use has not caught on with Indian consumers. As a result, its prices remain exceptionally volatile. Over the past two decades, seasonal fluctuations in retail prices have varied from ₹10-15/kg to ₹160/kg or even higher in certain markets.

As a result, in some months of the year, onion becomes the main ingredient in a poor woman's kitchen. And, in some months, it's a luxury on which even middle-income households economise. It doesn't have to be so if Indian consumers judiciously replace fresh onion with dried ones when the price of fresh onion skyrockets.

The writer is professor of social policy, Columbia University, US