Onion seed shortage could suggest a bad year ahead

The price of onions, a simple, but caustic and tear-provoking vegetable, was of no interest to anybody (since it’s not black caviar) until now when it has suddenly become the main newsmaker and the hero of many memes.

The reason is its record high prices, the limit of which has not yet been reached, as EastFruit analysts earlier explained. Onion prices in Ukraine, Georgia, Moldova, Uzbekistan, and Tajikistan are still far from those in the Philippines, where onions are presented at weddings and used as payment for goods and services, but we do not want to get there. Moreover, the Netherlands is switching from supplies of its expensive high-quality onions to Africa to exports to Eastern Europe. Even onions supplies to Kazakhstan and other countries of Central Asia are being discussed there.

It’s easy to guess what is coming to the minds of entrepreneurs not working in agriculture or farmers not growing vegetables when they see onions in stores at $1/kg. Many of them come up with a brilliant idea: “I need to sow 100 hectares of onions.” We do not know and cannot know how many of them will implement the idea, but there will still be a lot of them.

What will professional vegetable growers or those who grew onions last year and the year before do? How many of them will reduce the area of onion plantations for the 2023 crop?

We conducted a very unrepresentative anonymous survey of onion acreage prospects in 2023 on our Telegram channel and it produced interesting results. Of course, we do not assume that all people will say what they really think even in anonymous polls. Moreover, as the results changed, one could see the desire of the surveyed to cheat and inflate the number of votes for an unlikely scenario. However, this did not help. More than 70% of respondents said they expected an increase in onion plantations, and only 12% said they would decrease.

By the way, the seed companies have now sold out all the onion seeds. They say that sales have increased by 30-45% compared to last year. Predictable, isn’t it?

Is it possible to forecast the price of onions?

If one thought that this is not the first time this has happened to the prices for onions or other vegetables to be stored, well done. That’s exactly what it is – vegetable price cycles in countries with developed production and storage infrastructure are very stable if not influenced by any other external factors.

It seems that we can easily forecast the price of onions in the next season going by what followed the season of high prices in the last cycle. And even great minds are often wrong here – if it was so simple, much less than 95% of farmers would be wrong in their price forecasts for the new season in such years. For example, 90%.

Golden 5%

If you have read up to this point (if so, write it in the comments), you are one of those who have a good chance of getting into the 5%, because you, at least, doubt your predictions. Moreover, you try to find answers to questions on the EastFruit portal, where only the most reliable analytics is published and where no one is trying to sell you anything.

The bad news is that you can get into this 5% only if you come to your own opinion on the forecast of onion market developments in the new season. To this end, it is crucial not only to assess all the fundamental factors that will affect supply and demand in the market as objectively as possible but also to draw the right conclusions. However, even this does not guarantee success – as they say, one can accurately predict only what has happened.

Boring and complicated fundamental analysis – how to make it interesting and easy?

The article became unbearably boring at this point since incomprehensible words such as “fundamental factors” appeared. But it’s not as scary and boring as it seems. If you broke a cup, say, on February 7, 2022, does this mean that you will also break a cup on February 7, 2023? Or does this mean that on February 7, 2023, you can throw cups on the floor as much as you like and they will not break, because a cup has already broken a year ago?

Of course, not. This forecasting approach is called “technical analysis” and it never works in the agricultural sector. The only truth is that you need to be careful with fragile objects, otherwise they can break.

The conclusion that fragile objects can break, and you should not drop them, means a successful fundamental analysis. The same with onions. Prices for them may fall and even rise in a year, but it’s not worth guessing here. You need to think carefully about what exactly can lead to an increase or decrease in prices and what is the probability of this happening.

You should not assess mathematical probability; you can just use common sense. After all, common sense tells us that the probability that locusts will suddenly destroy all onion fields in Moldova is extremely low. Therefore, we will not take this factor into account. But the likelihood that, with high prices for fertilizers and plant protection products, their use will decrease, is quite high. And this can no longer be ignored.

Of course, no one can accurately forecast the weather for more than 10-14 days. But this is not needed – first, it is enough to assess the average yield for the last 5 years and the dynamics of changes in plantation areas, adjusted for the dynamics of the use of plant protection products, fertilizers, and seed quality. Let us assume that an increase of 10% in the area will give a yield increase of 10% only provided that the technologies remain unchanged.

In the years following the seasons of high prices for onions, the quality of seeds and the level of technologies for growing onions usually drop sharply, because: a) many newcomers enter the business, b) they buy anything with the name “onion seeds” on it. So, as a rule, the average onion yield also decreases somewhat, all other things being equal.

It is important to understand how much more onions are harvested a) than the domestic market needs, b) than usual, which is especially important for exporting countries, and c) for exporters – whether their usual buyers will purchase the same, larger, or smaller volumes.

“Just tell me, will there be a collapse in onion prices in 2023?”

It is at this stage that each market participant needs to find his answer to the questions above with regard to his country. This can only be answered in relation to each particular country, region, and even economy. Let’s see an example.

For instance, 1 million tonnes of late onions were harvested from 35 000 ha in “country A” in 2022. Of these, the domestic market consumed (including fresh consumption, processing, and natural losses) 800 000 tonnes, and 200 000 tonnes were exported. Meanwhile, prices were record-high and seed companies sold 35% more onion seeds for sowing in 2023.

We know that the plantations area can increase by 30-40% – it may be about 47 000 ha. Let’s say that due to many market newcomers, the yield will decrease by 5% compared to the average for the last 5 years, and expensive fertilizers and plant protection products will also lead to a decrease in their use. So, we can expect another 3-5% yield reduction. Accordingly, we forecast total production at about 1.29 million tonnes.

The first question is whether the domestic consumption of onions in country A will increase and how much.

The answer is very simple – onion consumption in most countries is quite stable, regardless of price, because onions are an indispensable vegetable. When there are not enough of them, there is nothing to replace them with, and consumption does not fall. Prices are rising to ensure supplies from other countries. That is why they have now grown so much – onions are normally a very affordable vegetable, and the cost of their transportation is quite high compared to their price.

Similarly, if there are too many onions, consumption will hardly increase. If you are given 10 kg of onions for free, you will not eat all of it. As we wrote above, onions are not black caviar. They are a necessary component of many dishes, but nothing more. Therefore, there is no motivation to consume more of them, even at a low price.

Let’s return to our country A. We will assume that the country’s population has not changed. This means that onion consumption will remain at the level of 800 000 tonnes.

This means that to keep prices at a high level, not 200 000, but almost 500 000 tonnes will have to be exported.

The second question is what is going to happen in the countries where you usually export onions, and will they be able to increase onion consumption by 300 000 tonnes?

We do the same analysis here as for your own country: whether onion production will increase or decrease in your onion-importing countries, and the population increase, etc.

Let’s say right away that in most cases you will not find a single country that would suddenly increase onion consumption by 300 000 tonnes in a year. Moreover, if onion prices were high in the previous season in this country, onion production is likely to increase there too, and the need for imports will fall.

Question number three – if there is no growth in demand in the main importing country, are there alternative countries that can consume this volume of onions?

We repeat what has already been said – onions are a relatively cheap vegetable in most countries, so it is usually unfeasible to export them far. The countries that used to buy onions from your country tend to be fairly close, or at least closer to possible alternative markets. This means that the probability of successful export to non-traditional countries will decrease sharply.

You also need to remember that you can sell everything – the only question is the price. The price is formed not like in the communist countries (producer price + logistics costs + the rate of return), but the opposite – the price of the market where the goods are sold, minus the trader’s profit, minus the logistics costs and what is left is the income of the farmer. So if the price in country B for onions is 50 cents, the logistics cost 40 cents, and the importer only takes onions if he earns at least 10 cents per kg, the farmer will have to give the onions for free. Of course, if he agrees to it.

The fourth question is what to do if onions cannot be sold at any price.

You won’t like the answer – you will have to pay for their disposal. No one needs large volumes of onions even for free.

Of course, if a country has large freezing and/or drying capacities, it is very profitable to send them to such types of processing in years when onion prices are low or close to zero. However, processors need to realize that other countries will do the same, so there will be an excess of products in this market. Therefore, it may be necessary to store onions for a whole year to sell them at a normal price.

Why there is a small chance that onion prices do not collapse in the 2023/24 season, at least in some countries?

Russia’s military aggression against Ukraine makes this season rather unique. Russian occupying troops destroyed the irrigation system of the southern regions of Ukraine – the largest irrigation system in Europe. Growing onions in other regions requires a different technology, drying, processing, and storage infrastructure that is not there. It cannot be created out of the blue.

Therefore, it will be nearly impossible to replace about 600 000-800 000 tonnes of onion production, which, in fact, are destroyed in Ukraine within one year. You need to understand another aspect – Ukraine will not need as many onions as before the start of the full-scale invasion of Russian aggressors. Therefore, Ukraine, will most likely not become an exporter, but it will be possible to find out how large onion imports will be in the new season only after detailed assessments that Fruit-Inform.com experts make annually by the end of April-beginning of May.

There is no hope that any other country in the region apart from Ukraine will suddenly experience a large shortage of onions. Thus, the forecast of price prospects for late onion varieties in the 2023-2024 season remains unfavorable.

And early onions in most countries of the region are very likely to be a highly sought-after commodity that will bring farmers a good return on investment.