India Imposes 40% Export Duty on Onions to Curb Rising Prices

Published 2023년 8월 24일

In response to surging domestic onion prices and the need to secure a stable supply for its citizens, India, renowned as the world's largest exporter of onions, has swiftly implemented a 40% export duty on onions, effective until December 31. This significant development aims to address the immediate concerns of escalating onion costs within the nation, especially with crucial state elections looming later this year. However, this move carries broader implications for the Asian region. While it may alleviate India's concerns about local onion prices, it places additional financial burdens on Asian buyers, given that other regional exporters have limited onion supplies.

India, the world's largest exporter of onions, has taken swift action to address soaring domestic prices of this essential vegetable. In a recent notification by the Ministry of Finance, India announced the immediate imposition of a 40% export duty on onions, effective until December 31. This move aims to bolster the availability of onions within the country, especially with key state elections later this year. However, it will impact Asian buyers, who may face increased costs as other regional onion exporters have limited supplies.

The export duty immediately places Indian onions at a higher price point compared to onions from countries like Pakistan, China, and Egypt. Consequently, this is expected to lead to a reduction in exports, contributing to the stabilization of local onion prices.

In response to this decision, onion auctions in all agriculture produce market committees (APMCs) in Maharashtra's Nashik district have been indefinitely suspended. Traders argue that this decision will adversely affect onion growers in the state and have called on the government to distribute onions through the public distribution system. Additionally, onion traders are urging the government to introduce a floor price mechanism for calculating export duty, ensuring fairness for all stakeholders. Bans and restrictions on exporting wheat, rice, and onions have already caused financial losses and inventory challenges for businesses.

Source: Tridge

According to Tridge's Price Index, the wholesale price of red onions in Uttar Pradesh markets reached USD 0.21 per kilogram (kg) in August. This represents a significant 15% month-on-month (MoM) increase from July and a substantial 50% surge from June's monthly average. The price escalation can be mainly attributed to an oversupply of low-quality onions due to prolonged summer heat. Despite ample stock, prices are rising due to concerns over quality and inflation, impacting both wholesale and retail markets.

India is experiencing one of its driest Augusts in over a century, with minimal rainfall expected across large areas, partly due to the El Niño weather pattern. This has led to the rapid spoilage of summer-harvested onions and delays in the arrival of new supplies. As a precautionary measure, the Indian government has intervened to address this issue.

In the first half of 2023, India's onion exports surged by 63% compared to the previous year, reaching 1.46 million metric tons (mmt). Countries including Bangladesh, Nepal, Malaysia, the United Arab Emirates (UAE), and Sri Lanka heavily rely on Indian onion shipments. Onions are a fundamental ingredient in traditional dishes across Asia, such as biryani in Pakistan, India, and Malaysia and fish curry in Bangladesh.

Kankana Ghosh, Tridge's Origination Manager in India, anticipates that onion prices will likely remain high until November, with Karnataka onions entering the market after September. In Mumbai's wholesale market, onion prices fluctuate between USD 2.4/kg to USD 3.3/kg for mid to high-quality products, with smaller-sized onions and those with peeled skin priced lower. Ghosh predicts a potential price increase ranging from USD 0.036/kg to USD 0.12/kg in the last week of August and the first weeks of September, a trend expected to persist until November.

India's export duty on onions may prompt China and Pakistan to follow suit with price increases, given their limited surplus for exports. With India grappling with its highest retail inflation in 15 months due to soaring vegetable and cereal prices, the government faces mounting pressure to take adequate measures to curb inflation and stabilize the market.