Impact of Onion Ban on International Trade
This blog post has been authored by Dishant Singh, Financial Analyst at Arthashastra Intelligence
To check the surge in local price of Onions, the Indian government imposed a ban on onion exports until March 31, 2024, a step ahead from its decision of imposing a Minimum Export Price (MEP) of USD 800 per metric ton on the commodity earlier in October 2023.
The basis for all these decisions was the exponential rise in price of onions in the Indian domestic market. To put things into perspective, the retail price index of onion was estimated to be 185 on December 2022, a rise of 85 percent when compared to the base year.
This recurring issue of the inflating onion price is often attributed to inefficient storage systems, which has caused losses of worth Rs 11000 crore annually. Moreover, uncertain climatic conditions causing gap between the major crop harvest seasons (rabi and kharif) along with speculative trade practices mostly during festive seasons affect the supply drastically causing a rise in prices.
THE EXPORT STORY
India is a top exporter of onions in the world in terms of quantity. The trade is adversely affected by the perishable nature of the commodity. Additionally, shipment time plays a crucial role in importing choices for most nations. Thus, South-East Asia and the middle east is a major export destination for India when it comes to onions.
The graph above depicts the top 10 export destinations for the Indian onion market, along with their market share for the F.Y.23.
During this period India exported a total of $577.17 Mn worth of onions to the world. Bangladesh stands at the top with its share being ₹ 89728 Lacs, however it has significantly reduced by 31.05% when compared to the previous fiscal year. This was because with the rising prices of onions in their country ever since India’s restrictive trade practices.
We witness a similar scenario with other two close neighbours, Sri Lanka has seen considerably reduced its growth rate to 9.90% compared to previous fiscal year which was 31.28% and Nepal has also seen negative growth rate of -3.84%.
However, thanks to our south-eastern and gulf counterparts, the story hasn’t been all gloomy and boring. The demand of Indian onions in gulf countries has risen over the past few years, with Oman, UAE and Qatar registering triple figure growths in exports during previous fiscal year. The ever-rising population of these countries, along with relatively low prices of Indian onion during the early phase of this year could be a major contributor towards this rise.
The onion demand from South-East Asia in the earlier phase of 2023 led to an increase of onion exports by 49% majorly due to demand of small sized onions(25-35mm).
Owing to this Malaysia’s onion imports from India grew by 73.15 % whereas Indonesia and Vietnam witnessed a staggering growth in imports by 155.58% and 202.01 % respectively.
Impact of the ban on the world
With the government taking stringent measures to limit onion exports, a sharp rise is witnessed in economies across the globe.
Following India’s decision to extend the ban until March 2024, Bangladesh witnessed a rise of 53 % approximately in their onion prices in a single day. The country is now keen to exploring other export sources for this commodity.
Even the nations which were increasing exports during the initial phase of 2023 are now sceptical.
Prices in UAE jumped six times to meet the demand post the ban by India and the country just like many other importers is now exploring other potential suppliers like China whose onion exports in October 2023 amounted to $301mn with a positive trade balance.
A Competitive Analysis
With all these developments discussed above, many assume that India might lose its foothold in the global onion export market. However, a look at the trade data and a comprehensive competitor analysis suggests otherwise.
The above graph depicts global onion export share of India (in terms of quantity exported) and its competitors alongside the export share of India and its competitors in some of India’s top export destinations(right) w.r.t onions.
We can clearly observe that India has a staggering 20% market share which is more than all its major competitors (Pakistan, China, Turkey and Egypt) combined when it comes to global onion exports.
India also holds a commanding position in all its major export destinations by accounting for more than 50% of these country’s total onion imports on an average.
The export ban has for sure left a void in market to fill, however most of India’s direct competitors look in no mood to take advantage of this opportunity. Pakistan in response to its high weekly inflationary rate of 43%, has decided to restrict onion exports. Egypt has banned export of onions till 30th march, 2024 like India and Turkey is only rumoured to have lifted the ban it imposed a year ago on 24th November 2022.
China, as it seems is in a favourable position to acquire India’s share. However, with most of the other supplies restricted and India humungous market share, it is doubtful if China could full fill the void with its onions.
The culinary preferences of the importing nations might restrict China’s aspirations further. For instance, post ban Nepal imported onions from China however the demand for the same remained low because people reportedly preferred Indian onions over Chinese due to its taste.
What the Future Holds
The Indian Government stated the ban to be temporary with an expectation of prices to come down in future. Moreover, with the kharif crops hitting the market, at the rate of 15000 quintals during late December and the prices of onions falling by 60% in India’s wholesale markets, it is expected that the govt might give some relaxations and lift the ban in the days to come.
References:
1. Export performance and comparative analysis of onion-with reference to India; V. Karuppaiah; R. Maruthadurai; Bappa Das
2. https://www.cnbctv18.com/economy/onion-farmers-export-ban-inflation-india-government-18875031.htm#:~:text=In%20August%202023%2C%20a%2040,on%20their%20already%20meager%20resources.
3. https://thewire.in/trade/onion-export-ban-worsens-farmer-distress-could-cost-india-its-overseas-market
4. https://www.reuters.com/world/india/india-bans-onion-exports-until-march-31-2024-2023-12-08/
5. https://commerce.gov.in/trade-statistics/