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Published: 26 January 2020

Import tax on onion is the best solution
M S Siddiqui

Onions are an important ingredient used in most South Asian dishes and its price is a very
sensitive issue. Bangladesh requires 2.4 million tonnes of onions a year, according to
government statistics. The country usually imports 1.1 million tonnes of onion from neighbouring
India on top of the domestic production to meet the demand.

Crisis of onion is not new in Bangladesh. But there is no serious study on the subject as we
have easy solution of blaming businesspersons. Bangladesh had an Onion shortage in the year
2013 and US based International Food Policy Research Institute studied the demand and
supply situation of onion and reported on September 17, 2013. The policy paper stated that
from early July to August 18, 2013, the market prices of onion rose dramatically in Bangladesh.
Although prices were showed a downward trend at the end of August and early September
(2013), they have begun to rise again.

The study recommended: (1) to decrease dependency on India and vulnerability to climate-
induced losses by importing onions from alternative sources. They have suggested to consider
China, Egypt, Malaysia, Myanmar, Pakistan, Turkey, and Vietnam. (2) The import should be
carefully assessing the impacts of onion imports on prices to avoid reducing prices so much so
that they become a disincentive for Bangladeshi farmers to produce onion. (3) The authority
should be vigilant against speculative storage between September and December, when
Bangladesh is most dependent on onion imports. (4) To increase domestic production, it should
ensure the supply of high-quality inputs-particularly seeds, fertilizers, and pesticides-to farmers
in a timely manner to increase domestic production of onion and (5) to reduce the country's
overall dependency on imports.

The ongoing crisis is not a sudden incident. The global and local newspaper reports through the
year 2019 have stated the reason of the crisis of onion. Fresh Plaza, a team comprises of some
growing writers, editors, and account managers based in The Netherlands.

They have monitored and studied on Spices and has report on 17th July 2019 about shortage
and increase of price of onion in Bangladesh market. This hike in the onion price was following
its increase in India, the main source of onion imports, and the prevailing inclement weather.

Fresh Plaza also reports about global onion market. In January, 2019 reports that, due to the
limited harvest as a result of the dry weather, the available stocks are considerably smaller due
to the high price of Dutch onions and the lower yield in Europe (1.2 million tons lower), Chinese
onions hurriedly imported and currently on the European market.

The shortage was duly predicted in India and Indian government had removed promotional 10%
incentives for export of fresh and chilled onions in June 11, 2019, a move aimed at discouraging
outbound shipments of the kitchen staple due to rising prices in the domestic market.

Subsequently, The Directorate General of Foreign Trade (DGFT) of India, in a notification on

13th September, had announced a minimum export price (MEP) for onion at $850 a ton.Onion
prices in Bangladesh are unlikely to come down unless prices fall in India with a bumper
production, said an exporter based in Kolkata, adding, however, that the "Indian crop is not
looking great due to uneven distribution of monsoon rains."

The Telegraph of UK reported on 18th November that South Asia's onion crisis has widened,
with Bangladesh airlifting supplies of the vegetable and the Prime Minister claiming prices are
so high, therefore, she has stopped eating them. India was importing 100,000 tons of onions in
a bid to curb rising prices.

In another notification the Directorate General of Foreign Trade, On September 24, 2019
prohibiting export of all varieties of onions until further notice, reported Press Trust of India.

The agriculture market experts also predicted that the summer crop in India is likely to bring
higher prices this year due to the drought situation prevailing in the state which will hamper
production. Syngenta, an agricultural Multinational Company's Bulletin reports on 24th July
2019 that India has withdrawn 10% export incentives on onion in June after the prices of the
bulb jumped 47% in a month in the local market due to dwindling supplies. Syngenta use to
circulate the bulletin both in Bangladesh and India.

The crisis has also been felt in Bangladesh. In Benapole land port, the import of Indian onions
reduced three-fold in June. According to a report in local daily on July 16, 2019, one Inspector of
the land port said "in last 10 days of the previous month, 1770 tonnes of onions were imported
through Benapole land port. But in first nine days of the running month, only 459 tonnes of
onions came through".

All the countries in the world noted the global situation and took initiative to find alternate source
of onion from early this year but Bangladesh authorities and business persons failed to take
note of production and market forecast and consumers are worse sufferer of the short sightless
of all stakeholders. Even India has started importing onions from Egypt in an effort to calm
prices. And there won't be any meaningful drop in prices before summer-sown crops start to hit
the market.

The policy maker of Bangladesh believes that the price hike of onion was illogical act of market
syndicate. They are not sensitive to global media reports. The National Board of Revenue
(NBR) claimed to have the information the imported onions are being hoarded illegally aiming to
create an artificial crisis in the market. Besides, there are allegations of money laundering in the
name of onion import.

The Chairman of NBR warned the traders for increasing the prices of essentials like edible oil
and salt in future and said such dishonest traders will have to face music. He claimed that the
onion stock in the country was enough and there was no reason to suffer from any such crisis.

The daily Prothom Alo reports on 27th November 2019 that the action and blame game have
negative impact in the market as the import of onion from Myanmar has reduced drastically due
to fear of action of the government. A few days back, the same consequent has been predicted
by Economist Dr Ahsan A Monsoor. This will have a long-term impact on the market.

The policy makers should understand that the blame game and action against traders will be
counterproductive and prolong the crisis. The market should handle the supply side with active
policy support of the government. Bangladesh is possibly only one country not to believe the
reported global crisis onion due to shortage of production throughout the world.

Government believe hoarding of onion by some dishonest businesspeople has created this
crisis…some importers have formed a strong syndicate…they didn't take any step to sell the
onion when it was rotting in godowns. Meanwhile, the Customs Intelligence and Investigation
Directorate (CIID) of the NBR has launched an investigation into the abnormal price hike of
onions and has summoned 46 of the onion importers for questioning.

But reportedly they could not find the evidence of stocking and black marketing by the
importers. The import policy or customs law don't permit the NBR to investigate the stock of
importers but they have taken the responsibility. The mobile courts are very active and
penalizing small traders throughout the country for selling onion at higher price.

The ongoing onion crisis, according to expert observations, seems to be a spill over effect of
global warming. According to reports in Indian newspapers, the production was damaged
hugely first by drought and then by excessive rainfall. Dr Syed Humayun Akhter, a geologist at
the University of Dhaka, said to an Indian daily newspaper that global warming has direct link
with the pattern of rainfall and formation of cyclonic storms in the Bay of Bengal.

Taking note of the research of International Food Policy Research Institute, USA in 2013,
Government should take steps as per their recommendation. The cost of production and cost of
import should be aligned with imposing tax on import to encourage local production in order to
reduce dependence on other countries.

The action of Mobile Courts, investigation of intelligence agencies and rampant allegation
against businesspersons will not bring any change in prevailing situation. Let us hope for good
sense of policy markets in Bangladesh and take care about supply of 2020 / 2021 and so on.
The writer is a legal economist