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Understanding causes of volatility in onion prices in India

Understanding causes of volatility in onion prices in India PurposePost-2008 global food crisis the prices of perishable high-value food commodities, such as vegetables and fruits, in India have risen faster and become more volatile compared to that of cereals. The welfare consequences of price shocks though are well understood yet the policy responses to manage these remain blurred because of a lack of clarity on their causes. Focusing on onions that comprise an important constituent of the Indian diet, the purpose of this paper is to explore causes of high price volatility.Design/methodology/approachUsing high-frequency time series data on wholesale prices and arrivals of onions in major markets and other relevant variables, this paper analyzes causes of price volatility from several angles, that is production shocks, seasonality in production and market arrivals, internal trade, export policies and market power of intermediaries on the supply chain.FindingsDespite markets being integrated and no significant climatic shocks to production there exists a strong element of uncertainty in market arrivals of onions, pointing toward the market power immediate downstream the production or alternatively anti-competition trade practices in major markets as a cause of high price volatility. The measures to manage price volatility, such as an increase in minimum export prices and bans on exports, are also not found to have an immediate cooling effect on prices.Research limitations/implicationsThe agricultural policy should provide for a system of market intelligence to monitor anti-competitive trade practices along the supply chain, and to take proactive trade control measures to prevent frequent ups and downs in domestic prices. In addition, it should provide for incentives for developing efficient supply chains and for the cultivation of onions in the regions that have agronomic potential but it has remained underexploited due to one or the other constraint.Social implicationsExcessive volatility in food prices impacts farmers, consumers, processors, and traders and even political system. It may distort production and investment decisions of farmers and intermediaries on the value chains, leading to inefficient allocation of resources. The poor consumers may be forced to reduce food and non-food productive expenditures. If persists for a longer period, it may lead to political instability too.Originality/valueSeveral studies have analyzed volatility in food prices and causes thereof. However, rarely any of these has examined volatility in prices of perishable high-value food commodities. This paper is an attempt toward filling this gap. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Agribusiness in Developing and Emerging Economies Emerald Publishing

Understanding causes of volatility in onion prices in India

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2044-0839
DOI
10.1108/JADEE-06-2018-0068
Publisher site
See Article on Publisher Site

Abstract

PurposePost-2008 global food crisis the prices of perishable high-value food commodities, such as vegetables and fruits, in India have risen faster and become more volatile compared to that of cereals. The welfare consequences of price shocks though are well understood yet the policy responses to manage these remain blurred because of a lack of clarity on their causes. Focusing on onions that comprise an important constituent of the Indian diet, the purpose of this paper is to explore causes of high price volatility.Design/methodology/approachUsing high-frequency time series data on wholesale prices and arrivals of onions in major markets and other relevant variables, this paper analyzes causes of price volatility from several angles, that is production shocks, seasonality in production and market arrivals, internal trade, export policies and market power of intermediaries on the supply chain.FindingsDespite markets being integrated and no significant climatic shocks to production there exists a strong element of uncertainty in market arrivals of onions, pointing toward the market power immediate downstream the production or alternatively anti-competition trade practices in major markets as a cause of high price volatility. The measures to manage price volatility, such as an increase in minimum export prices and bans on exports, are also not found to have an immediate cooling effect on prices.Research limitations/implicationsThe agricultural policy should provide for a system of market intelligence to monitor anti-competitive trade practices along the supply chain, and to take proactive trade control measures to prevent frequent ups and downs in domestic prices. In addition, it should provide for incentives for developing efficient supply chains and for the cultivation of onions in the regions that have agronomic potential but it has remained underexploited due to one or the other constraint.Social implicationsExcessive volatility in food prices impacts farmers, consumers, processors, and traders and even political system. It may distort production and investment decisions of farmers and intermediaries on the value chains, leading to inefficient allocation of resources. The poor consumers may be forced to reduce food and non-food productive expenditures. If persists for a longer period, it may lead to political instability too.Originality/valueSeveral studies have analyzed volatility in food prices and causes thereof. However, rarely any of these has examined volatility in prices of perishable high-value food commodities. This paper is an attempt toward filling this gap.

Journal

Journal of Agribusiness in Developing and Emerging EconomiesEmerald Publishing

Published: Jun 25, 2019

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