Some of our regulatory bodies put out fascinating studies – studies that only tax-payer funded entities dare sponsor. I found this gem in our Competition Commission website: a report on the economics of onion markets. Some of its conclusions reiterate what our inner cynics had already judged:
- Market structure of onion is unilaterally dictated by the traders, not farmers.
- A few big traders having well connected networks with market intermediaries seem to play a major role in hoarding for expected high prices.
- A clear case of oligopolistic entry barriers were found.
- Farmers generally take reference of the local markets’ rates, while traders compare rates of all markets, including major distant and export market and then decide where to send their produce of a particular grade. This brings greater profits to them.
- Export ban and arbitrary practice of fixing Minimum Export Prices (MEP) for onion often cost exporters in in terms of losing their credibility in export markets as irregular suppliers. Fixation of MEP makes small exporters reluctant to export which sometimes leads to excess supplies in domestic markets, leading to fall in prices.
Grab a cup of coffee and read the whole thing.
Source: Competitive Assessment of Onion Markets in India (pdf)