Onion Cartel – Making the Consumer Cry

Swarnim Shrivastava, Student of Law, HNLU, Raipur

The other reason why onions made us cry was the recent inflation in its prices in India. Onion, being the most significant and common ingredient in Indian recipe, the increase in its price is having a huge impact on food security and consumer welfare. The high volatility in its price can have a disproportionate, non-linear or asymmetrical impact on the Indian economy.

If we look at the supply chain of the onion market, it goes through a long chain before the consumer could buy it. It passes through as many as four intermediaries before reaching the local vegetable market in a semi-urban or urban area. These middlemen, wholesalers, traders and commission agents usually charge fees and analysts estimate that by the time the vegetables make it to the stands in a retail market, their price has increased by almost six times. The transactions are usually not documented. When a genuine crisis looms, these middlemen often pile up supplies to create an artificial scarcity and siphon it off when prices shoot through the roof.

The Competition Commission of India (CCI) is trying to get some more information on the trends and practices about the onion markets ((Available at http://www.livemint.com/Politics/91WpLyOeAjLy13GItU9tkO/CCI-seeks-information-on-cartelization-as-onion-prices-soar.html)).   It was from the last year that CCI began to keep studying the price rise in the onion market ((Available at http://www.cci.gov.in/images/media/completed/AO.pdf)). It ordered a study to examine the volatility of prices and its relationship with distribution in the “loose and casual market”. The study revealed high prices of onions could not be attributed to exogenous stocks and mismatch between supply and demand, and even when supply was plentiful, the prices remained high. It noted that there is an almost oligopoly kind of situation and the trade was monopolised by a handful of cartels and recommended that until multiple players, ranging from producers to consumers, were involved, the price will be by a few traders dictated. The study also pointed out that National Agricultural Marketing Federation of India (NAFED) should procure onions directly from the farmers/producers rather than the traders.

 The Honourable Chairperson of the Commission, Mr. Ashok Chawla said, “We will see how it plays out further. We will see whether it warrants an examination or not.” Further, he added “This is again an issue on which the commission had spent some time in the past…and come to a conclusion that the markets don’t seem to be functioning very well. But there was no evidence of cartelization ((Supra note 1)).”

Mr. Chawla also noted that if there is hoarding of the commodity, then the matter would not fall under the ambit of the commission. “Now if it is hoarding, that is what the newspapers seem to be suggesting, then it is not for us to deal with it. It is for the government and the state governments to handle. We will see and at this stage we cannot say anything. We will see if we need to examine it further ((Supra note 1)).” The Commission seems toothless in this regard as the Competition Act, 2002 does not empower the Commission to nip this kind of unfair practice in the bud.

A plausible solution to this problem is to come out with an effective mechanism to break hold of the traders’ cartel in the onion market. The government should not just try to mediate the situation through curbing volatility in food prices and improving supplies, but formulate a strong anti-cartel enforcement method. With the increasing cartel activities, as seen in the cement and onion markets, it is high time that Indian Competition law should adopt criminal sanctions for cartels rather than carrying on with its soft law practice which fails to curb the unfair practice.

Further Reading