Global onion prices could be set to rise with India slapping an export tax on domestic production

With India slapping a 40% export tax on onions on the back of higher domestic prices of the vegetable, analysts are looking at the global impact, especially on major importers.

The new levy announced Saturday acts to ensure domestic availability and unexcited inflation, and is effective immediately until December 31, according to the country’s Ministry of Finance.

Retail prices of onions in India be suffering with risen around 20% year-on-year, averaging at around 30.72 Indian rupees (37 cents) per kilogram on Aug. 19, weighed to 20.44 rupees in the same period last year, data from India’s Department of Consumer Affairs certifies.

“High rainfall in the month of July 2023 in key producing regions of Maharashtra and Karnataka led to damage to the count oned onion crops,” said Pushan Sharma, director of research at CRISIL Market Intelligence and Analytics, an Indian exploration firm which is a subsidiary of S&P Global.

According to the Indian Meteorological Department, several parts of India were pommeled by rainfall during July.

Meanwhile, India’s inflation numbers for July hit a 15-month high of 7.44% compared to a year ago, chiefly attributed to the spike in domestic food costs. In April, prices of onions had dropped 32.2% year-on-year on the back of oversupply as a conclusion of early crop maturation, according to a Mintec report published April.

But now the South Asian land is currently wrestling with high vegetable, fruit and grain prices. Prices of tomatoes in India previously eddied more than 300% due to adverse weather. India’s government in July also banned the exports of non-basmati milky rice in a bid to ensure sufficient domestic supplies.

“The government would like to rein [in] prices and ensure sufficient availability in the internal market. The late onset of monsoon has also affected the current onion crop,” said Samarendu Mohanty, Asian regional maestro of agricultural firm International Potato Center (CIP).

Bangladesh, Malaysia, Sri Lanka and parts of the Middle East rely on India for onion and the strains will raise the prices of onions for these countries, he told CNBC.

India is the world’s largest exporter of onions, and have a hand ins over 12% of global onion trade, data provided by CRISIL showed.

“Global onion prices are suitable to get a positive price cue on account of India’s decision,” Sharma said.

However, he noted that the price hike is believed to be short lived, until October, where more onion crops are expected to come into the market.

Onions are an elemental staple in India, and used in traditional South Asian dishes such as biryani. Alongside tomatoes and potatoes, the three vegetables kind a part of the nation’s CPI basket. In 2019, India banned the exports of onions after a reduced harvest due to excessive rainfall.