EastFruit analysts point out that wholesale prices for onions on the Uzbekistan market are currently on average almost three times lower than a year earlier at the same time. In addition, so far there are absolutely no prerequisites for their growth. Moreover, since October 2023, wholesale prices for onions in Uzbekistan have decreased by 18%. Considering record volumes of onion exports and a sharp increase in shipments of Uzbek onions to the EU countries in December 2023, such a price decline could be explained only by one thing – there are just too much product on the market!
Although today is not the first of April, and there are still three whole months before the start of April, let us recall that the majority of market participants we surveyed believed in a sharp increase in onion prices by that date, and 19% of them were confident that prices would at least double. In particular, for Uzbekistan, the average expectations of market participants were around 23.5 US cents per kg at wholesale level and the optimal prices were closer to 35 US cents.
However, in order to reach a price of even 23.5 US cents per kg in Uzbekistan by April, onions must rise in price by 62%. Although such a scenario is not completely unrealistic, the complete absence of price increase trends now indicates the difficulty of its implementation. Moreover, there is not much time left before the start of harvesting the new onion harvest in Uzbekistan.
In August 2023, EastFruit analysts described in detail the reasons why expectations of rising onion prices in Uzbekistan may not be realized. Since then, a number of events have occurred in the global onion market, which have significantly improved market conditions. It is for this reason that there is good news – a price collapse has so far been avoided. However, the surplus of onions continues to put pressure on the market of Uzbekistan, and there is less and less time to sale, because the new harvest may turn out to be quite significant.
Why, despite the absence of a collapse in onion prices, are entrepreneurs who invested their own and borrowed money in purchasing and storing onions for the purpose of resale at a higher price are now under stress and unable to sleep?
The fact is that the average price at which onions can now be sold is on average 10-25% lower than the one paid by resellers. Secondly, storing onions always and inevitably leads to weight loss. A thousand tons of onions purchased in September or October now weighs, at best, 950 kg. We also note that most of these resellers are inexperienced in purchasing and storing onions, so the losses will be significantly higher than 5% of the weight. Thirdly, during storage the quality of products never increases – under ideal conditions it is preserved, but usually it goes down. Well, fourthly, the money raised for the purchase of onions also has its own cost as well.
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Accordingly, in order to simply avoid losses, the reseller must now sell onions at an average of 15% more than he/she bought it. By April 2024, this difference must reach at least 25%, only in order to return the invested funds. And since at the moment onion prices are on average 30-40% lower than what is needed to cover the investment, this cannot but worry “onion entrepreneurs”.
The sales planning factor must also be taken into account. Most resellers, especially those without experience in this business, try not to sell products until the desired price is reached. This means that they are not opening the doors of their storage facilities yet, limited the market supply. However, it is not at all obvious that the desired price level will be reached by the market. However, the storage facilities will have to be opened as soon as the air temperature begins to rise rapidly, because many rented storage facilities in Uzbekistan are not equipped with refrigeration units, and the onions there will quickly begin to sprout, and their quality will begin to deteriorate. At that moment prices, as a rule, not only do not rise, but often collapse.
Of course, we would like to wish that all entrepreneurs could return their money invested into the onions but let us remind you that storing vegetables and fruits for resale at a higher price in the spring is not a separate business, but a gamble in casino. And in the casino, in the vast majority of cases, the casino wins.
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