Onion Price Volatility in India: Need for a Proactive Agricultural Policy

04 Sep 2026

Tags: Agriculture   Supply Chains   Market linkages

Source: The Hindu

Context: India has long faced a policy dilemma between keeping food prices affordable for consumers and ensuring remunerative prices for farmers.

• Since the 1960s, government interventions have largely focused on short-term management of price volatility, rather than addressing structural causes.
• Onion illustrates this challenge particularly well because of its high price volatility, perishability and storage difficulties.

Erratic Trade Policy and Farmer Uncertainty

• The Centre has repeatedly altered onion export policy: export ban (December 2023–May 2024) → $550/tonne minimum export price + 40% export duty → 20% duty (September 2024) → abolition of duty (April 2025).
• Such frequent policy changes create uncertainty because farmers make production decisions based on expected prices, while government interventions may change after those decisions have already been made.
• Farmers therefore face the risk of both low domestic prices during bumper harvests and restrictions on exports when prices rise.

Procurement and Storage Constraints

• During the recent rabi harvest, Maharashtra’s onion farmers argued that the Centre's initial procurement price of ₹12.35/kg was inadequate to cover cultivation costs.
• The procurement price was subsequently raised to up to ₹26.45/kg, but many farmers could not benefit because they had already sold their produce at very low prices.
• Some farmers had received as little as ₹1/kg, particularly for lower-quality onions, highlighting the importance of storage infrastructure and access to markets.
• This demonstrates the limitation of intervening only after prices have collapsed and the difficulty of ensuring that higher procurement prices reach farmers across different grades of produce.

Structural Causes of Onion Price Volatility

• Inadequate storage: Onions are more vulnerable to post-harvest losses than relatively durable commodities such as wheat and rice, making large-scale buffer stocking difficult.
• Weather shocks: Abnormal rainfall during harvest and an estimated 5–7% decline in Maharashtra's kharif onion crop intensified supply pressures.
• Uneven distribution: Inadequate mechanisms for efficiently moving stocks between surplus and deficit regions can cause simultaneous low farm-gate prices and high retail prices.
• Policy uncertainty: Frequent changes in export restrictions and duties weaken farmers' ability to make predictable production and investment decisions.
• Limited protection against price shocks: Farmers remain exposed to sharp price declines despite government interventions in procurement and buffer stocking.

Tamil Nadu's Targeted Subsidy

• Tamil Nadu has introduced a targeted subsidy to purchase 1,000 tonnes of onions and distribute 1 kg per ration card at ₹35/kg.
• The measure can help cool retail prices while discouraging hoarding, and provides targeted consumer support.
• However, distributing onions through a dry-grain-oriented Public Distribution System (PDS) creates logistical challenges because onions are considerably more perishable.
• The economic rationale could weaken if post-harvest losses exceed 10–15% or if prolonged subsidies become necessary.

Risk to Central Buffer Stocks

• Similar interventions by other States could place substantial pressure on Central onion buffer stocks.
• This concern is particularly significant because storage losses have reportedly reached around 30% this year.
• Therefore, using buffer stocks and subsidies as repeated short-term responses may become increasingly expensive and unsustainable.

Way Forward: From Reactive to Proactive Policy

• Expand scientific storage infrastructure and improve post-harvest management to reduce losses and extend the marketing period.
• Strengthen distribution networks so that surplus stocks can be moved quickly to deficit regions.
• Maintain a predictable and less erratic trade policy, allowing farmers to incorporate export prospects into production decisions.
• Develop stronger price-risk management mechanisms to protect farmers from sudden price collapses without causing excessive consumer price increases.
• Improve procurement mechanisms so that different grades and categories of farmers can access remunerative prices.
• The broader objective should be to move from ad-hoc price intervention after a crisis emerges towards a comprehensive system combining storage, logistics, predictable trade policy, procurement and farmer price protection.