The economics of onions, not biochemistry, is making the nation cry

In every movie about food, there's a scene in which the main character ends up weeping while cutting onions. Anyone with an iota of cooking experience can relate to this.  Why and how onions make one cry is a question biochemists have long enjoyed a monopoly on answering. 

When you cut an onion, you break open cell after cell, releasing their liquid contents.  This chemical easily vaporizes causing a burning sensation when it floats up from the cutting board and comes in contact with the eyeballs. The brain quickly triggers a tear response to clean the offending compound away. It is just an irritant. The worst thing that can happen is tearing a lot. One can never go blind prepping onions. Individual reaction to the chemical varies in the level of intensity. However, there isn't much you can do to change it. 

Our recent grocery experience shows onions can be jerks for reasons other than just some fascinating biochemistry. These days it is not the biochemistry of onions, but onion economics, that is making the nation cry.  

Onion is an essential product consumed in every household in Bangladesh throughout the year. Onion comprises 1.1 percent to 1.6 percent of monthly food expenditure of households. Urban people consume more onion on average than people in rural areas. Rise in price of onion is not as big a concern for relatively higher income group as it is for poor people. 

Bangladesh is a large producer of onion, but meeting the total demand requires imports every year. Onion productions were 2.3 million metric tons in 2018-19 in Bangladesh while demand is estimated at about 3 to 3.3 million metric tons of onions per year. There are significant number of buyers and sellers in the market.  Entry into the market is not too costly at most of the stages in the supply chain. There is no clear evidence of collusive price setting in major onion markets nor do the traders appear to be information constrained in normal times. 

The occasional price volatility is mainly caused by the forces of demand and supply. The onion market in Bangladesh is strongly linked with the Indian market.  Imports from India meet a significant share of local demand during off production season. Any shock in the Indian market is transmitted quickly to Bangladesh, often exacerbated by Indian policy interventions aimed at protecting their constituencies. Whenever local price of onion increases inordinately, Indian government imposes restrictions either by banning onion export or setting Minimum Export Prices at a very high level. 

Onion prices in Bangladesh have increased exponentially since mid-September, triggered by a ban on onion exports from India.  Allegedly profit-mongering traders increased the prices of both local and imported varieties of onion more than proportionately. A kilogram of onions is now costlier than apples and fishes. It may have also surpassed average daily wages for an unskilled or a semi-skilled worker.  

Nothing irks the common man more than the rising price of onion or other such daily commodities in their basket. A basic food item has once again slipped from the average consumer's reach.

With a little preparation, you can slice, dice and cook an onion without ever shedding a tear. When an onion is cold, it doesn't release that irritant as easily as it would if it were warm. The next time you need to cut an onion, chill it for 10 to 15 minutes beforehand. Better yet, start storing your onions in the fridge to save the chill time before you start cutting.  Facing a fan toward your chopping station blows the gas away. If these don't work, try wearing goggles at the risk of looking a little intense, but at least you won't be crying.

No such options from the economics of onion price volatility. Worse, guaranteed depression from the associated policy and politics.  

Effective policy and market intervention depend on proper understanding of the supply chain, the actors involved, and their power to distort competition in the market. The supply chain of onion varies across regions as well as markets.  It is simple in the onion growing region relative to non-growing regions. More actors come into play when onion moves from growing to non-growing regions. Importers play a key role in the supply chain since a significant fraction of the domestic demand is met by imported onions. Commission agents link the importers to traders in large markets in big cities. These differences notwithstanding, the onion market appears to satisfy most of the pre-conditions for a competitive market. The occasional price volatility is mainly caused by the forces of demand and supply and the vagaries of public policy response. 

The Government has tried to ease import, sell through government outlets at fixed prices and launched drive against "hoarders". However, the actions seem panic driven, uncoordinated and at cross purposes.  

The government started supplying onions through the Trading Corporation of Bangladesh in the open market. The common people still fret and fume as they have to stand in queue for long to get the onions, about which there is no certainty, not to speak of leakage to open markets. 

• The government turned to large businesses to import onions in bulk. Onions have been flown in from Turkey and Egypt without any visible impact on prices yet. With the involvement of big business groups comes the fear of cartelization. 
• Mobile courts have fined and jailed more than 2,000 traders in the past two months on charges of "excessive" hoarding. The government has reportedly collected information on 341 businessmen who imported onions from India during August-November. However, the Customs Intelligence and Investigation Directorate (CIID) has found no evidence of onion hoarding after questioning 43 top onion importers for a couple of days.  The importers claim to stock them for 2-3 days at most. 
• Traders in many local markets are reportedly mulling to stop onion sale to avoid being sworn at by angry customers and interrogated by the CIID as if they are involved in some shady business. 

It is important to distinguish between policy actions designed to mitigate the immediate consequences and those to prevent price volatility. 

Policies to mitigate immediately include adequate stocks and information. The stocks enable an emergency intervention. Challenges include setting achievable objectives for stocks, selecting the composition of stockpiles and dealing with the costs associated with holding such stocks. Improving market information reduces information asymmetry, helping to address extreme volatility. Market information is used by policymakers to better manage supply and demand. All business participants in commodity supply chains need market intelligence to be more efficient and competitive. For smallholding farmers, who produce the bulk of local onions, improved access to market information encourages spatial and temporal arbitrage and strengthens their bargaining power in business deals. 

Medium to long-term options to maintain price stability include the adoption of source diversification and productivity increases. Reliance on external markets, particularly on India as a source of imports, has proven its limits on more occasions than one. Easing of unnecessarily time-consuming restrictions on imports generally could prove to be a much better strategy to stabilize onion prices. 

Bangladeshi farmers grow onion using indigenous methods with a yield rate significantly lower compared to many other onions producing countries. One study in 2017 estimated the mean technical efficiency at 67 percent implying that output can be increased substantially by eliminating production inefficiencies.  These are due to poor planting materials, low fertilizer use, weed infestation, inferior quality seed, and lack of plant protection measures. Post-harvest losses are reportedly at around 20 percent. 

Miscalculated and ill-timed policy response can cause pain by also reversing the situation. Just last February, bumper harvests and high imports from India caused drastic fall in onion prices, leaving farmers to bear a major portion of the loss. This highlights the need for adequately equipped warehouses to store all the onions and the welfare increasing role that hoarding can play.

The key therefore is to address the root causes of the problem—supply disruptions, messy regulation, uncoordinated policy response, opportunistic behavior by large traders and public officials, and misinformation. The lethal combination of biochemistry and the absence of policy response based on sound economics keeps consumers' tears flowing and their pockets emptying while the onion wheelers and dealers make hay of this situation. 

The author is an economist.