The government of India has imposed a 40% export duty on onions in August 2023, and the duty will be effective until December 2023. There is a need to ensure the adequate availability of onions for domestic consumption and stabilise onion prices. This increase has occurred due to the recent monsoon adversely impacting the onion harvest this year. The lower harvest of the onion and high demand led to the rising price of onion (Das, 2023). The export duty on onions not only discourages onion export but also adversely impacts farmers' incomes. The economic and geopolitical effects of these onion export duties, based on past precedence, show us the significant influence that this allium genus root holds.
There are signs of a potential onion shortage in India, combined with inflationary pressure. After three years of the El Nina effect, the El Nino Southern Oscillation (ENSO) is settling over the Northern Hemisphere with rising sea surface temperature, which would lead to reduced rainfall and a subsequent low crop yield during the November-January cycle of onion production. Previously, states like Maharashtra faced heavy rainfall during the summer months, causing damage to the standing onion crops and reducing yield. Concerns over crop yield have led the government to impose the export duty on onions.
With the increase in India's export duty on onions, the prices in Bangladesh have risen by 50%, effectively shutting down these markets. While Nepal had stopped the import of onions for August, it resumed importing them in September due to soaring local prices of onions, anticipating a more significant price rise in the face of the festive season (Business Standard, 2023). The global prices of onions are also set to rise due to pressures of surplus demand over the now deficit supply. The disruption of the food supply chains can also lead to the shutdown of importing markets till alternative chains are set up, such as in the case of Bangladesh. This non-WTO-compliant behaviour has also led to issues for local onion farmers, who have lost a significant percentage of their sales, which would have otherwise gone to customers overseas. Despite these criticisms, one can understand the necessity of implementing this policy when considering the circumstances and its consequences on the domestic market.
Such an action does not come as a surprise when considering the past effects of the onion shortage on the Indian economy. During the onion shortage of 2019 (COVID), prices rose by nearly 500% over just eight months, causing social and political uproar, and this is not an outlier either. Onions have been a vital element in the political outcomes of this nation - be it the re-election of Indira Gandhi through her 'Onion Elections' or the fall of the Vajpayee government, partly due to the skyrocketing prices of onions. Historically, the prices of vegetables have controlled the public sentiment towards the party in power. Hence, governments always look to preserve the stability of onion prices and supply, either by maintaining buffer stock, increasing export taxes, or both. The political element behind these actions is preserved, especially considering the next general elections that India shall hold in barely six months. The Modi government's rating had fallen drastically during the onion shortage in 2019, and a repeat of the same close to the elections period might prove disastrous.
Onions are one of the most important vegetables, not just in Indian households but also in several cultures in Asia and the Middle East. India's actions have immediately affected the global onion economy, being the largest exporter of onions in the world, with close to 450,958.43 million USD worth of onions exported in 2022-23 alone. Only a few states in India hold significant production power over onions, such as Maharashtra, with 42.73%, and Madhya Pradesh, with 15.23% of the 28 million tonnes produced last year. These exports go to some of the largest onion-importing countries, namely, worth almost 174 million USD to Bangladesh, 65 million USD to Malaysia, and about 37 million USD to UAE and Nepal each. As previously mentioned, the disruption of the current food chains will influence the global onion industry till substitute chains are set up. These alternative supply chains would originate from the other onion exporting nations, which lead the shares of world onion exports alongside India. These include China (33.3%), Netherlands (13.8%), Spain (8.2%), and Mexico (6.8%), which would quickly fill up the supply gap left by India (AtlasBig, 2022). However, this won't come without the effects on the domestic markets, whose prices would rise since the supply reduces from there.
Overall, while India faces criticism for its actions, especially considering its position as a G20 nation that promotes trade, the implementation of the export tax stands acceptable, considering the political economy surrounding it and its potential to prevent a collapse of the onion market. This onion ban certainly fulfils its primary goal of locking the rising domestic onion costs, although at the possible cost of diplomatic relations with certain other countries. Such phenomena, with their causal nature originating as a consequence of climate change raises a bigger question. How many more commodity sacrifices would occur before the planet's condition becomes apparent?
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