Wholesale onion prices dropped 10% in the first half of trading at Lasalgaon Agricultural Produce Marketing Committee on Monday, a sharp fall attributed by traders to the central government's decision to increase the minimum export price (MEP) of the commodity.

Onion prices are expected to fall further in the days ahead, traders said. They said their cost of carrying the stocks needs to be covered. The Centre had on Friday increased the minimum export price of onions to $425 (about Rs 27,000) per tonne from $250 (Rs 16,000) per tonne, following the increase in wholesale prices to Rs 16 per kg in June from Rs 12 per kg in May.

"Prices plunged immediately on Monday due to the hike in MEP," said Nandkumar Daga, an onion trader from Lasalgaon APMC.

Farmers said there was no need to increase the MEP since onion prices had started declining and exports were negligible due to Ramadan. The increase will be misused by traders to slash prices given to farmers, they said.

"We can understand if the government hikes the MEP when the prices in domestic market are high and consumers are suffering. But there was no situation like this. In fact, wholesale prices had already started declining in the last 10 days," said Nanasaheb Patil, chairman, Lasalgaon APMC and director of Agricultural Produce and Marketing Federation of India.

Though some trade experts said the hike in MEP is justifiable as it is on a par with the prevailing market prices, the farmers did not agree with this reasoning. Patil also pointed to the possibility of misuse of the hike in MEP by traders.

"They will misuse the hike in MEP to bring the prices down at farmers' end, saying that exports are not taking place. However, exports had already declined due to the fall in demand from the Arab countries with the onset of the holy month of Ramadan," he said. "Rumours like import of onion from Pakistan had already pulled down the markets."

Last year, when the government imposed an MEP of $500 per tonne on July 2, the domestic wholesale prices crashed from Rs 20 per kg on July 2 to Rs 13.50 on September 2.

Farmers expect to get progressively increasing prices for the stored stocks compared to the prices prevailing at the time of harvesting in the months of March and April, hoping to recover the carrying cost of the perishable commodity.

"The government and the consumers should think that the onions that the farmer is now bringing to the markets have been stored for the past three months. He has already seen rotting of 20-30% stocks. The price the farmer gets now should be higher than what he was getting earlier in order to cover these losses," said Patil.

Exporters also said that the hike in MEP is far more than required. "The hike in MEP should not have been so steep," said Ajit Shah, president of Onion Exporters Association of India.

Source:economictimes.indiatimes.com