To Store or to Sell: A 20-Tonne Onion Lot in Nashik
A farmer in Niphad taluka (Nashik) harvests 20 tonnes of red onion in the last week of February. The mandi price on the day of harvest is ₹1,200 per quintal, and a trader offers to lift the whole lot at the farm. The local storage chawl charges ₹0.25 per kg per month, and transport to and from the chawl costs ₹0.40 per kg in total. Labour for curing, grading and filling bags costs ₹1.00 per kg. The farmer can borrow at 12% per annum. He expects about 28% weight loss over four months and assumes 5% of the remaining bulbs will be unsaleable because of sprouting and black mould. Local opinion is that the June price will be ₹2,000 per quintal. The chawl is unventilated and the crop was harvested after rain, and the farmer has no drying shed of his own.
1. Calculate the net realisable value of selling now versus storing for four months, and recommend a course of action.
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Option A - sell at harvest
- 20,000 kg × ₹12/kg = ₹2,40,000, with no further cost and no risk.
Option B - store for four months
- Weight retained = 20,000 × 0.72 = 14,400 kg
- Saleable after 5% loss = 14,400 × 0.95 = 13,680 kg
- Revenue at ₹20/kg = 13,680 × 20 = ₹2,73,600
- Costs: rent 20,000 × 0.25 × 4 = ₹20,000; transport 20,000 × 0.40 = ₹8,000; labour 20,000 × 1.00 = ₹20,000 → ₹48,000
- Interest for 4 months at 12% on about ₹2,88,000 (produce value plus storage costs) ≈ ₹11,520
- Net = 2,73,600 − 48,000 − 11,520 = ₹2,14,080
Break-even June price: (2,40,000 + 48,000 + 11,520) ÷ 13,680 = ₹21.90/kg, i.e. ₹2,190 per quintal.
Recommendation: with June prices expected at only ₹2,000/qtl, storage loses about ₹26,000. Sell now, unless he can store only well-cured, graded bulbs and find a buyer at above ₹2,190/qtl.
2. Which assumptions are most likely to be wrong, and how would that change the decision?
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- The 28% weight loss is probably optimistic. The crop was harvested after rain and the chawl is unventilated, conditions in which 35-40% loss plus heavy black mould is common. At 35% loss the saleable quantity falls to about 12,350 kg, and the break-even price rises to roughly ₹2,400/qtl.
- The ₹2,000 price is an opinion, not a contract. Onion prices move sharply; if June prices fall to ₹1,500/qtl the loss becomes about ₹95,000, which a small farmer cannot absorb.
- The interest rate may be understated. If he borrows from a money lender at 24-36% instead of 12%, the interest component triples and storage becomes unambiguously loss-making.
- Labour and rent are often higher in practice, because grading after storage needs a second round of labour.
- The one assumption in his favour is that farm-gate sale forgoes nothing in transport, whereas stored bulbs must be carried twice and may need re-grading.
Net effect: every plausible error works against storage. The decision to sell now is robust, not marginal.
3. If he does store part of the lot, what practical steps would cut the losses? What should he change before next season?
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If storing any part:
- Store only well-cured, thick-necked and disease-free bulbs. Cure in shade for 10-15 days with tops on, then cut the neck 2 cm above the bulb; this closes the neck and limits black mould entry.
- Grade out bolters, doubles and damaged bulbs first; do not store bulbs from the rain-affected part of the field.
- Use a ventilated structure with bottom and top openings, bags of 20-25 kg stacked with gaps, and inspect every fortnight, removing rotting bulbs immediately.
- Consider staggering sales: sell 60-70% at harvest, hold only the best 30-40% for March-April rather than holding to June, and where possible agree a forward price through an FPO or contract buyer.
Before next season:
- Build or hire a low-cost curing shed with airflow.
- Choose a variety and harvest date that suit storage, avoid late harvesting after unseasonal rain, and stop irrigation in time.
- Plan storage economics before harvest: if the expected June price is not at least ₹2,200-2,400/qtl, book the crop for sale at harvest.