Root causes: How MAFAP helped Bangladesh to find solutions to spikes in onion prices

23/04/2024

Background and problem

Onions have long been part and parcel of Bangladeshi cuisine. It’s no surprise, then, that according to FAOSTAT, the South Asian country produced over 2.5 million tonnes of onions and shallots in 2022. This made Bangladesh the 5th biggest producer of dry onions and shallots in the world that year, behind the USA, Egypt, and China, and India, who ranks as the top producer, generating over 31 million tonnes.

Despite the cultural importance and being among the world’s biggest producers, prices for onions in Bangladesh in recent years have witnessed periods of price spikes.

Various factors can explain this – from domestic supply such as seasonality weather events to  domestic demand such as consumer preferences and seasonality, to international dynamics such as input prices or trade policies of trade partners. 

What’s more, price volatility can affect producers’ investment decisions for onion production, their output levels and the prices they fetch at farm-gate. In turn, it can have a negative effect on consumers’ diets, wellbeing, and well as food security. 

What did MAFAP do?

Following a request in October 2021 for from the Bangladeshi Department for Agricultural Marketing (DAM), the MAFAP team worked alongside the Bangladesh Agricultural University to understand the root causes of price volatility and price spikes and to propose solutions to help soothe price shocks for both producers and consumers. 

Using descriptive statistics, with daily and weekly price data from the DAM, they carried out a regression analysis that found that there have been several price spikes since 2011, and many price hikes recorded when India – from where Bangladesh imports around 60% of its total imported onions in 2021 – imposed export restrictions such as minimum export prices or export bans.  

A more detailed econometric analysis looking at the relative importance of several factors, such as seasonality and India trade policy in explaining price levels, found that seasonality explains a large part of the variation in prices. However, the analysis also finds that India’s trade restrictions on onions were also an important factor behind price hikes between 2017 to 2021, especially when trade restrictions coincided with the months where domestic supply was lowest.

Several solutions were put forward that fall into either domestic supply actions or import measures. On the domestic side, ensuring good-quality seeds arrive on time, increasing productivity through higher yields and reducing post-harvest losses, which some estimates put at 25%, would help increase the consumable quantity of onions and thus reduce the production deficit. As onion is a perishable, unprocessed commodity, greater access to cold storage facilities would also drive down post-harvest losses at the distribution stage. As onion is a crop with a high dependence on imports, diversifying the country’s onion trading partners might also help to control price volatility.  

Impact

During the FAO’s 2022 Hand-in-Hand Investment Forum, a flagship initiative to spur agricultural transformation through investment planning, Bangladesh included various investment proposals to address post-harvest losses. As cold storage infrastructure has been lacking – and was highlighted in our analyses as one of the solutions to the boost domestic supply of onions – a cold storage facility for onion was pitched to investors. 

The facility, to be based in Rajshahi or Faridpur, would house around 2 000 metric tonnes of onions a year, director benefit over 266 000 farmers, create 15 new jobs, and could help to increase cold storage to 25% of annual production, and raise a farmer’s income by USD 243 per year. The onions stored here would be sold domestically to meet onion shortage during the 4-5 off-peak months in the year (September to December). 

Additionally, the Dutch-Bangla Onion Support agri-business consortium is working together to develop the onion sector in Bangladesh by improving onion quality and post-harvest losses, areas that broadly fall in line with MAFAP’s analysis and recommendations. 

MAFAP policy support for agrifood reform in Bangladesh’s onion sector is fully aligned to FAO’s 4 Betters approach for Better Production, Better Environment, Better Nutrition and Better Life. Our work on onion in Bangladesh specially addresses five programme priority areas (PPAs) in FAO’s Strategic Framework 2022-2031, including BN4 – Reducing food loss and waste, BN5 Transparent markets and trade, BL5 – Resilient agrifood systems, and also BL6 – Hand-in-Hand Initiative, and BL7 – Scaling up agrifood investment.