A Visit to the Lasalgaon Onion Market

by on March 29, 2017 at 7:46 am in Economics, Travel | Permalink

It’s a paradox of kinds that in the United States we use markets more than in other countries but as a people we are less likely to participate in a market. Of course, when we buy things at the supermarket we Lasalgoan1are participating in a market but in posted-price markets it’s hard to see price formation and supply and demand in action. So when I travel abroad, I like to visit markets. (Tyler calls it GDP tourism).

The Lasalgaon onion market is Asia’s largest. It’s about four hours from Mumbai in Nashik district which is also well known for grape production. Twice a day during the season(s) onion farmers bring their small trucks and trailers filled with onions to auction. Farms in India are small, approximately 67% are one hectare (2.4 acres) or less and 99% are below 10 hectares. Thus, hundreds of trucks park in long lines that stretch into the distance. The farmers dump some of their onions onto the ground so the buyers can inspect for the type, size, moisture content and quality. An auctioneer then walks down the line and quickly auctions off the content of each truck. As we watched, one truck’s onion supply was bought for a buyer in Dubai, the next went to Malaysia, the next and highest quality went to France. The process is fast, fast, fast!

Lasalgoan2We were guided in our adventure by Nanasaheb Patil, a highly respected businessperson and the chairman of the Agricultural Produce Market Committee, a group that runs the market and ensures the honesty of the auction process.

Current onion prices are very low, below production cost, but high onion prices have brought down more than one national government so the farmers don’t get much of a hearing. When prices are high the government bans exports and blames farmers for hoarding (when prices are low as is true today, exports are allowed).

The onion crop from certain times of the year rots quickly. Lasalgoan3The government did build a very expensive irradiation facility to improve shelf life but the facility, which can process 10 tonnes of onions an hour, was only used for 3 hours of onion processing in a recent year! Although using the facility isn’t expensive it requires unloading, sacking and reloading tonnes of onions which renders it uneconomic (the facility is used for mango irradiation because mangoes exported to the US must be irradiated.)

One thing I hadn’t expected was that our presence at the auction market was something of an event and led to a story and photo (you can probably spot my wife and son) in the local newspaper.

We also visited some of the local grape farms. You can get an idea about wages by noting that on this farm, which was exporting grapes, every single bunch was wrapped in newspaper to prevent sunburn.

A special hat tip to Milind Murugkar, engineer, writer, and long-time reader of MR who invited me to Nashik and arranged for us to meet our wonderful host Nanasaheb Patil.

grapes1

1 kevin March 29, 2017 at 8:14 am

What’s the rational for disallowing exports when prices are high? Wouldn’t that lower the prices? Producers maximize revenue, or p*q. If you restrict q, there’s less incentive to lower p since q can’t be increased. Perhaps the government is right: farmers are hoarding, but its because of the government intervention

2 JWatts March 29, 2017 at 8:34 am

“What’s the rational for disallowing exports when prices are high? Wouldn’t that lower the prices? ”

That’s the point. The locals are complaining about the high prices of onions, so the government responds by banning exports which drives down prices.

3 kevin March 29, 2017 at 9:09 am

I think you missed my point. I’d expect banning imports to drive *up* prices. If I’m a monopolist/oligopolist producer, I’m happy to hold some of my supply from the market if I can charge a higher price. If I’m suddenly given a larger market to sell to it makes sense to lower the price a bit if I can sell all of my supply. (previously I would have had to drop my prices a lot to sell all of my supply)

4 kevin March 29, 2017 at 9:10 am

expect banning *exports* to drive up prices. Sorry, still early morning

5 JWatts March 29, 2017 at 9:38 am

“I’d expect banning imports to drive *up* prices.”

In the long term it will, but in the short term there is an immediate over supply of onions. So the price collapses, because of the glut. The locals get cheap onions, the politicians get votes and the farmers get hammered.

6 Alex Tabarrok March 29, 2017 at 9:42 am

Agree with JWatts. Note also that the onion market is very competitive since there are thousands of producers.

7 Bob Flannigan March 29, 2017 at 11:37 am

Yep. Take a look at Argentina and their banning of beef exports. Herds were sold off, pastures converted into soy and corn fields, beef production collapsed and prices went straight back up.

8 Thought+Food April 1, 2017 at 5:47 pm

The farmers do not have facilities to hold the supply without quality deterioration so they must sell as soon as onions are ready at whatever price the market offers that day.

9 Anon March 29, 2017 at 9:30 am

Populism. With onions, Consumers’ tears impact votes more than Producers’ tears.

10 Thiago Ribeiro March 29, 2017 at 9:55 am

“Money is not the tool of the moochers, who claim your product by tears” – Ayn Rand
Apparently, onions are the moochers’ tool.

11 prior_test2 March 29, 2017 at 8:23 am

Nice to see local content produced with a Huawei Nexus 6P, at an altitude of 522.0 m above sea level, taken on March 21 – though one can likely reasonably question if the actual time was 17:25:18.

If EXIF is not a concept – and really, who needs to worry about privacy on the Internet anyways – it might just make sense to invest a minute or two in the subject. Or not – really, these days, very few people care about just how much information can be collected, much less used. Especially since the EXIF information was probably saved by Google before providing the image for other people to use in the other three cases.

12 JWatts March 29, 2017 at 9:06 am

Alex, thanks for the travelogue pieces. They make for interesting content.

13 Thiago Ribeiro March 29, 2017 at 9:17 am

“Current onion prices are very low, below production cost, but high onion prices have brought down more than one national government so the farmers don’t get much of a hearing.”
As the onions go, so goes the country. Charmingly primitive. I was thinking about touring the Amazonian fisher-Native vilages, but maybe I should visit the biggest onion market in Asia instead. Does the chairman of the Agricultural Produce Market Committee guides the tourists himself? How much should I tip him?

14 Nevermind March 29, 2017 at 2:32 pm

Forget tipping, he can probably buy you

15 Thiago Ribeiro March 29, 2017 at 5:15 pm

I guess they still buy and sell people in India, I hear IS also trades slaves. Anyway, will the natives do a little dance for the tourists? Will they play primitive drums? Will they burn widows for the tourists? Can we take pictures?

16 India2017 April 1, 2017 at 5:50 pm

Are you serious? Which India are you thinking of? That primitive picture was carried back by the colonial rulers some centuries ago, contemporary India is not this caricature.

17 Anonymous March 29, 2017 at 9:39 am

I think the headline translates as : “American Economist experiences Onion Auction.”

18 A Black Man March 29, 2017 at 9:46 am

No, it reads “US Taxpayers Send Old White Men on Holiday To Asia”

19 peri March 29, 2017 at 11:44 am

Onion markets are the stuff of your everyday experience? And just when I complacently thought I had the MR commentariat pigeonholed.

20 A Black Man March 29, 2017 at 12:38 pm

You think it is OK for the plumbers and landscapers to pay for an old white guy’s vacation to Mumbai. I thought I had libertarians pigeonholed and I was right.

Nothing screams “libertarian” like being a pampered ward of the state.

21 peri March 29, 2017 at 1:30 pm

Wouldn’t know, not a libertarian, whatever that is. But I had the impression the writer had assumed an academic or foundation post in India.

22 Troll me March 29, 2017 at 1:41 pm

Maybe send the plumbers and landscapers and see what happens?

23 charlie March 29, 2017 at 9:43 am

The two markets that most americans experience as consumers — car sales and mattresses — are also the most unsavory experience for most Americans.

24 Troll me March 29, 2017 at 1:43 pm

In much of the world, that experience comes with basically every little thing. So, if you stay in the same place and go back to the same places, many things you will not have to haggle for literally every time because there is an agreed upon price, but for many things you will have to haggle on price every single time.

Unless you go to a premium store where you just pay the higher price on everything anyways.

25 peri March 29, 2017 at 5:06 pm

At least with cars you can look them up in the CR car guide. With mattresses, the labeling and branding is too slippery to enable much knowledge of what you’re buying.

New furniture “galleries” often have an ambiguity about their pricing, as if inviting you to haggle. Or in hopes of matching price to customer through some formula of their own. But they end up seeming to have confused themselves too much to sell you anything. “I’ll have to talk to Bob about whether that’s part of the July Madness sale … Cheryl, have you seen Bob?” Here I am walking out the door – please note I didn’t refuse your wares – you were weird and reluctant to name the price of anything.

26 Bob from Ohio March 29, 2017 at 9:49 am

Great story!

However, this is a wholesale market. Truck loads are being sold by producers to commercial buyers.

Its not comparable to a retail grocery store in the US. Most Indians are not going to this market to buy a truckload of onions.

There are similar markets in the US for various products. The details are different but the concept the same.

27 Hazel Meade March 29, 2017 at 9:52 am

The onion farmers could try branding their onions like the onion farmers in Vidalia Georgia do.
Then convince everyone that Lasalgaon Onions are special.

28 Ray Lopez March 29, 2017 at 10:16 am

” the next and highest quality went to France. ” – exactly. The First World always gets the best produce. It’s actually true in the USA as well: the best stuff is shipped away and you’re not left with anything for the locals, who are too poor to afford the best anyway (maybe Gilroy, CA with garlic is the exception, since it’s a tourist trap).

Bonus trivia: why are the Indians so racist with just red onions, but no white ones?

29 Harun March 29, 2017 at 1:19 pm

My wife is from Taiwan. She likes cherries, and loves to buy American cherries in Taiwan.

In America, she complains that the American cherries are inferior to those sold in Taiwan.

I suspect that the best ones are being exported to Taiwan, Japan, Korea, where fruit is a bigger deal than America.

30 mobile March 29, 2017 at 2:56 pm

The inferior produce will be even more inferior after a lot of shipping. It is only economical to ship the best produce. If France were less rich, it would do without Indian onions rather than buy a cheaper grade.

31 Phil March 29, 2017 at 10:36 am

“Current onion prices are very low, below production cost”

that sounds pretty rough for the farmers

that must be upsetting, to have invested your resources into an onion crop, then bring back negative return, “The process is fast, fast, fast!”

so goes life I guess, but it doesn’t seem so romantic from that vantage point

32 Thiago Ribeiro March 29, 2017 at 10:40 am

They make up for the losses by selling more onions.

33 Boonton March 29, 2017 at 3:02 pm

It’s interesting to contrast this with the calls for ‘price transparency’ in health care. In an onion auction, price is quite transparent. One ton of onions is just like another so any particular buyer or seller can just take the prevailing market price. This applies to nothing else that’s specialized. If you want to buy a rug, you are haggling with the rug merchant and the price will depend upon both of your skill, how many other people are in the market for a rug that day, how many rugs the merchant has, how much time he can afford to try to drive a good price from you versus does he just want to sell rugs fast so he can turn over his inventory.

How think about ‘transparent health care’. How would that really work? You need an MRI. Are there lots of people in need of an MRI and few MRI machines? Is there a lot of down time? You need a consultation with a doctor? Is this a cold physical from scratch? The beginning of a long term disease that needs management? A quick once a year confirmation all is well?

Such services cannot be sold by any conventional auction method and even haggling becomes problematic because the actual scope of services needed are unknown until diagnostic services are done. Actual markets where auctions of a type can be done when you get third parties involved. Such as an insurance company that can offer to keep a doctor’s office 40% filled with patients every day in exchange for a cut rate on office visits. There you can do auction type markets because while there’s no way to know what will come from one exam of one new patient you can average what will be required to see many patients in a pool.

But you can’t have individual and 3rd party market price transparency. Cut rate prices given to insurance companies who bring pools of random patients to the office mean the price for a cash paying walk-in patient will appear excessive, difficult to understand and not very transparent.

34 Anon March 29, 2017 at 3:42 pm

That’s sounds like a fun experience.

If you have not done so, try t attend some tobacco auctions in small town Carolias and Ky.

35 gbz March 29, 2017 at 3:53 pm

One thing that I still haven’t understood is why no one has engaged in large scale farm consolidation in india. As Alex correctly points out, the median farm size is non-sensically small, and in an industry where scale is crucial, it is suicide. Of course we know the obvious reasons (hampering regulations, ownership for farmers, anti-corporate politics etc…) but it really is so self-defeating. Suggestion for modi — setup legal vehicles, structured like cooperatives, to get small farms consolidated into modern large scale operations.

36 Boonton March 29, 2017 at 5:25 pm

Sounds like that’s the other side of the story. The initial story has the poor farmers who are screwed by the politicians. Whenever onion prices go up, the politicians ban exports forcing them down rather than letting the poor farmers get rich exporting their crops. The flip side, no doubt, is that farmers have pushed their own set of laws frustrating consolidation in farming which ensures there’s always going to be a huge number of farmers with modest plots rather than fewer farmers with huge crops.

37 mkt42 March 29, 2017 at 6:22 pm

“You can get an idea about wages by noting that on this farm, which was exporting grapes, every single bunch was wrapped in newspaper to prevent sunburn.”

Yes, although another factor is surely those average farm sizes. At one hectare, a farmer can (must?) lavish close attention on every individual plant. If the farmer owns too many hectares, there are too many plants to make this feasible.

The low wages are surely a factor too; I’ve heard that even a middle class household in India will have servants of various sorts because the wages are low enough that the household can simply hire helping hands to do chores.

38 John Hutnyk March 30, 2017 at 4:58 am

Thanks for this. The many product specific markets deserve greater attention, and especially the international links. They aren’t supermarkets but a the level of a map of connectivities, those also – well, the ones that display origins on their produce as some sort of authenticity badge. Given our local supermarket (big city in the uK) has no fruit grown on this island – this post is al the more relevant, and topical because – Brexit.

39 Axa March 30, 2017 at 6:52 am

Every single bunch was wrapped in newspaper to prevent sunburn………..like Kyoho grapes?

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