August 17 2006, 10:27

Another top record - does it mean onion overproduction?

Mid August is a peak of onion harvest, so we can make preliminary conclusions. First - there is no doubt that another onion production record is likely to be done this year. Second, it will significantly exceed the past year record. Stored onion was easily sold past year; it completely came up to entrepreneurs' expectations. Farmers also got good profits, as the lowest price for onion on terms of customer's pick up did not decline lower $0.11-0.12/kg past year. Once and again, in 2005 producers and wholesalers were assured about onion "credibility" regarding price and profitability.

According to the data of the poll conducted by the Agricultural Marketing Project in March 2006, nearly one half of farmers (44%) produced onion past year and planned to extend onion acreage in 2006. And, 16% of onion producers in 2006 will be new-comers to this business. There were no producers ready to give up onion production.

As to the most pessimistic forecast, onion production in 2006 will grow 20-25% comparing to the result of the previous year. Onion production can possibly grow even one third. Weather favors onion as well: farmers inform about good quality and high yield of onion. One of the factors contributing to yield growth is the continuous dissemination of highly-productive hybrids. A growing share of fields is planted with precision drills which also have positive impact to high yield. There are more onion plantings with utilization of drip irrigation.

The demand for onion is growing in Ukraine. The main reasons are greater onion consumption by the population, increased vegetable processing (for which onion is needed), greater demand in the regions where people consumed rather large contraband shipments before. We can expect that onion production in 2006 is going to reach an approximate level needed to satisfy the demand for onion in Ukraine. At the same time, there is a great probability of overproduction, if our forecasts concerning production volumes are too pessimistic.

At the present moment the price for onion on terms of customer's pick up is in the previously forecasted limits $0.13-0.15/kg. However, onion overproduction has been already observed on market. Facing problems to sell onion, farmers will start declining the price. Judging from the allocated selling area, onion is the main vegetable on FARMER wholesale market in Kyiv now. Though the price for onion is still the same - $0.23-0.27/kg, excessive supply make vendors think about inevitable price decrease.

Newly harvested onion will be well stored; the storages have already started to purchase this crop. The entrepreneurs hope to repeat the past year success in onion trade. However, the experts are doubtful about such expectations, as "extra" onion can hamper the implementation of ambitious plans.

Increased onion export would be a good solution which can reduce the pressure on inner market. But, exporters will have to do a hard job for it. During five recent years Ukraine exported not more than 500 tons of onion annually, according to the data of the official statistics. To make the export influence the inner price, exported shipments should be dozens-fold larger.