The data suggest that onion supply is highly price inelastic in the short run: a relatively modest 11% increase in supply was associated with a much larger 30–40% fall in wholesale prices. That conclusion should be treated as an approximation, however, because the price change may also have reflected factors such as demand conditions, perishability, exports, and market disruption. Contemporary reports from Lasalgaon describe sharply increased arrivals and farmers having little option but to sell at prevailing prices because the crop is perishable.
1. Evidence of price-inelastic supply
Price elasticity of supply (PES) measures how responsive quantity supplied is to a change in price:
\(\text{PES}=\frac{\%\Delta Q_s}{\%\Delta P}\)
The main evidence is:
- Supply rose by 11%, while the wholesale price fell by 30–40%.
- Using the figures as a rough calculation:
\(\text{PES}=\frac{11}{30}\approx 0.37\)
or
\(\text{PES}=\frac{11}{40}\approx 0.28\)
- Since PES is below 1, supply is price inelastic: quantities supplied changed proportionately less than prices.
- For onions, farmers cannot quickly alter output once the crop is planted and nearing harvest. They cannot simply leave a mature, perishable crop in the ground until prices improve.
- The Lasalgaon evidence also says arrivals rose from a usual roughly 15,000 quintals per day to around 25,000–35,000, while prices fell substantially; farmers were reported to have little choice but to sell at market prices.
Strictly, the 2017 event primarily shows a substantial outward shift of supply due to a bumper harvest, not a pure movement along a supply curve caused by a price change. But it is still strong practical evidence that, in the short run, onion growers have limited flexibility over how much reaches the market.
2. Data needed to calculate PES
To calculate PES accurately, one needs data for two periods on:
- The quantity of onions supplied or sold by farmers, ideally in tonnes or quintals.
- The average wholesale price received by farmers at Lasalgaon.
- The original and final quantity and price, rather than only statements such as “supply rose 11%” and “prices fell 30–40%.”
- The precise time period: for example, weekly or monthly data before and after the price change.
- Evidence that the observed change is a movement along the supply curve, caused by price, rather than a supply shift caused by weather, harvest size, disease, storage losses, or policy.
A midpoint formula is preferable:
\(\text{PES} = \frac{\frac{Q_2-Q_1}{(Q_1+Q_2)/2}}{\frac{P_2-P_1}{(P_1+P_2)/2}}\)
For example, if quantity supplied increased from 100 tonnes to 111 tonnes and price fell from ₹100 to ₹65, this calculation would give a more reliable estimate than simply dividing 11 by 35.
The information given allows only a rough estimate of responsiveness. It does not establish that the 11% rise in supply was caused by a change in price; it was caused by a bumper harvest.
3. Why farmers can lose in both cases
The statement means that onion farmers may receive lower total revenue both when harvests are unusually large and when harvests are poor.
Total revenue is:
\(\text{Total revenue} = \text{Price} \times \text{Quantity sold}\)
When farmers grow more
A bumper harvest shifts market supply to the right. Since demand for onions is likely to be price inelastic, consumers do not increase purchases by much when prices fall.
- Quantity sold rises.
- But the market price falls by a larger percentage than quantity rises.
- Therefore, total revenue falls.
Using the figures in the question:
\(\text{Change in revenue} \approx 1.11 \times 0.65 = 0.7215\)
If supply rises by 11% and price falls by 35%, farmers’ combined revenue is approximately 72% of its former level—a fall of about 28%.
This is particularly damaging because onions are perishable. Farmers may lack cold storage, finance, or bargaining power, so they may be compelled to sell quickly even at very low prices. Reports from the period noted the large market arrivals and that farmers had little option but to accept prevailing rates.
When farmers grow less
A poor harvest reduces supply, shifting the supply curve to the left.
- The price of onions rises sharply; in the question, wholesale prices rose by 170%.
- But each small farmer has far fewer onions to sell.
- The gain from a higher price may not offset the loss of output.
For instance, suppose a farmer normally sells 100 units at ₹10:
\(100 \times 10 = ₹1{,}000\)
After crop failure, the price might rise by 170%, to ₹27. But if output falls to 25 units:
\(25 \times 27 = ₹675\)
Despite the spectacular price rise, revenue is lower because the farmer has too few onions to sell. In addition, farmers may face higher costs from drought, flooding, pest damage, replanting, irrigation, debt, and lost work—so their profit can fall even more than their revenue.
This illustrates an important distinction: high market prices do not necessarily mean high farm incomes. A price spike may benefit traders holding stored onions more than growers whose crop has already failed or already been sold.
4. Can farmers combat these conditions?
Individual small farmers have limited power, but collective organisation, better storage, risk management, and diversification can reduce the severity of income instability.
| Strategy | How it could help | Main limitation |
|---|---|---|
| Form or join farmer producer organisations/co-operatives | Pools produce, improves bargaining power, enables bulk sales, reduces reliance on middlemen, and may improve access to transport, grading and buyers | Requires trust, capable management, finance and sustained membership |
| Invest in storage and cold-chain facilities | Allows farmers to avoid selling all onions immediately after a bumper harvest; spreads sales over time | Storage is costly; onions deteriorate; small farmers may lack credit or facilities |
| Improve market information | Up-to-date price and arrival information across markets can help farmers choose when and where to sell | Information alone cannot solve a nationwide glut or lack of transport |
| Sell directly or diversify buyers | Links to retailers, processors, institutions, online markets, restaurants, and consumers can reduce dependence on one wholesale market | Quality standards, logistics and buyer relationships may be difficult for small farms |
| Process onions | Dehydrated onions, flakes, powder and paste are less perishable and can create added value | Processing needs capital, equipment, skills, food-safety compliance and a reliable market |
| Diversify farm output and income | Growing other crops, keeping livestock, or developing non-farm income reduces dependence on onion prices | Diversification may reduce specialisation and carries its own risks |
| Use crop insurance and credit | Can cushion losses in poor-harvest years and reduce distress sales | Insurance may not fully cover income losses or price collapses; access and claims can be problematic |
| Forward contracts or price agreements | A pre-agreed price can reduce uncertainty for part of the crop | Farmers may have weak negotiating power, and buyers may be reluctant to offer contracts |
| Government buffer stocks and price stabilisation | Public procurement in gluts and release of stocks during shortages could smooth extreme price swings | Requires effective timing, storage, funding and transparent implementation |
| Support exports during surpluses | Opens additional demand when domestic supply is unusually high | Export demand and trade rules are uncertain; it does not solve the structural problem alone |
Overall judgement
Farmers can reduce risk, but no individual action can fully overcome the basic problem of a perishable crop sold by many small, price-taking producers into a volatile market. The most effective response is likely to combine farmer co-operatives or producer organisations, affordable storage, reliable market information, access to credit and insurance, diversified income, and government measures that stabilise extreme price fluctuations.
The 2017 price fall illustrates why output growth alone is not necessarily good news for small onion farmers. When demand is relatively unresponsive and onions must be sold quickly, a bumper harvest can reduce farm income; when harvests fail, high prices may not compensate for the missing crop.