One very important module in all economics training should be visiting and understanding local markets. It is appalling how as economics students we don’t know how markets/shops work in our neighbourhood and markets in our city of training. It is as if markets only exist in textbooks. They are just all around us but we hardly care. It might be just a great idea if we students understood these markets and look to make them better.
So it was interesting to read this post on MR blog by Alex Tabarrok who visited Lasalgaon’s onion market. It was also nice to read that he was invited by an avid blog reader!
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 are 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.
We 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. The 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.)
Just so enlightening to read all this than all the wonky (and near useless) economics. People have figured the high costs of irradiation on their own without any economist advising them. You learn much more economics visiting these places. More so in India with its sheer diversity..
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