By: Sreejith Balasubramanian
The rural agrarian distress in India is now widely acknowledged, as food inflation fell to historical lows and wage growth slowed. With deficient pre-monsoon rainfall and diminishing reservoir levels, the south west monsoon season (June to September) rainfall is back in the spotlight. The season is a crucial driver of rural sentiment and consumption expenditure, as it witnesses more than 70% of India’s annual rainfall, coincides with the Kharif crop sowing season and given that ~50% of food grain cultivation continues to be rain-fed. Further, with the India Meteorological Department (IMD) forecasting a ‘near-normal’ event and global agencies issuing El Niño alerts, the season assumes greater significance this year.
What are the weathermen saying this year?
The IMD forecasts monsoon rainfall to be 4% below normal while private forecaster Skymet is at 7% below normal. The Australia Bureau of Meteorology recently downgraded its forecast for El Niño, a warming of the Pacific Ocean typically associated with lesser rainfall in South Asia, to ‘watch’ (50% probability) from ‘alert’ (70% probability). It also expects positive Indian Ocean Dipole (IOD) conditions, a warming of the western Indian Ocean which is good for rainfall in India, to prevail during the season.
It is worthwhile to note:
• All El Niño years are not deficient-rainfall years and vice versa (Figure 3). The onset, duration, strength and timing of the peak of El Niño during the season matters. For e.g., a late-season occurrence might cause an early withdrawal of the monsoon rainfall which reduces soil moisture (and impacts sowing) in the following Rabi season. Similarly, a weak and/or short-lived occurrence may not impact rainfall much
• Ultimately, it is the spatial and temporal distribution of the monsoon rainfall which matters and not just the headline numbers. The progress of rainfall alongside crop sowing in key regions holds the key
• Positive IOD could offset the impact of an El Niño to some extent. However, the interaction between El Niño and IOD phenomenons is still an evolving area of research
IMD forecasts: Under-estimation bias in deficient years
We looked at the IMD’s forecasts (made in April and June each year) vs. the actuals in the last ten years (Figure 4).
• The IMD under-estimated (in April each year) occurrences of monsoon rainfall deficiency in 7 of the last 10 years, while it under-estimated rainfall surplus in the remaining 3
• The magnitude of IMD’s under-estimation in rainfall is higher for deficiency, compared to surplus
• It got the direction (deficient/surplus) wrong in its April forecasts for 4 of the 10 years – 2010, 2011, 2013 and 2016
• It got the direction (deficient/surplus) wrong in its June forecasts for 3 of the 10 years – 2011, 2013 and 2016
• It changed its June forecast (from April) in the wrong direction in 2 of the 10 years – 2011 and 2017
The run-up to the season – deficient rainfall and low reservoir levels
It is not the performance of monsoon rainfall on a standalone basis that matters. The run up to the season – rainfall pattern in previous months, reservoir levels in regions with higher irrigation levels – also matters. For e.g., monsoon rainfall with poor temporal and/or spatial distribution on the back of prolonged dry conditions could be more damaging for agri production than otherwise.
• The 2018 monsoon season rainfall was 9% deficient, with 31% of the country’s area receiving below-normal or deficient rainfall
• The post-monsoon season (October-December 2018) rainfall ended 44% below normal, with 80%+ of the country’s area receiving below-normal/deficient rainfall
• The winter season (January-February 2019) rainfall ended above normal, but the normal absolute rainfall during this season is very low and January had ended in deficit
• The pre-monsoon season (March-May 2019) just ended 25% deficient with ~61% of the country’s area receiving below-normal/deficient rainfall
• Western states of Gujarat and Maharashtra seem to be the worst hit through the above periods – reservoir levels here are the lowest among all the regions.
The crops and states that matter
The main food grains grown during the kharif season are rice, coarse cereals and pulses which had a share of 72%, 22% and 6% respectively in FY19 annual production. Looking at the recent rainfall and current reservoir situation in the top five producer-states of these food grains, if monsoon rainfall here turns out to be deficient, we could see an impact on production in:
• Uttar Pradesh, a major producer of all the 3 food grains, as pre-monsoon rainfall was deficient and reservoir levels are low
• Maharashtra (major producer of coarse cereals and pulses) as the state is already reeling under acute water shortage and heat wave conditions
• Other states such as Andhra Pradesh, Telangana, Tamil Nadu and Bihar which together accounted for 22%, 20% and 10% in the production of rice, coarse cereals and pulses respectively in FY17
In terms of the impact on crops:
• Pulses have the highest area-concentration, with the top 5 producer-states accounting for 74% of the production (Madhya Pradesh alone has a share of 27%). Deficient rainfall in few of these states could impact production
• Coarse cereals are quite concentrated too, with the top 5 producer-states accounting for 62% of the production. Further, sowing was already 21% below normal in the previous Rabi sowing season
• Rice production is geographically better distributed, with the top 5 states accounting for only 50% of the production (next 5 has a share of 27%). Fall in production in any one region could thus be offset by production from other regions
• While a production hit could dampen rural income and consumption, the inflation impact, if any, could occur only if production of rice or pulses are majorly hit because 1) coarse cereals have a very low weightage of ~0.4% in the Consumer Price Index (CPI) unlike rice (4.8%) and pulses (2.4%) and 2) market-offload of the sufficient government stock of rice (and more recently of pulses) would mostly smoothen any price impact
Rainfall impact: more on agri production and consumption than food inflation
Impact on food inflation has waned over the years owing to:
• Cereals, which have a high weightage of 9.7% in the CPI, but enjoy steady government stocks that smoothen any price fluctuations
• Recent food inflation being driven more by price fluctuations in perishables such as vegetables and fruits
• Supply-side government measures
What else matters?
Apart from the monsoon rainfall and reservoir levels, the overall agri scenario is also impacted by various factors such as global commodity prices, government stock levels, farm input costs and agri trade.
• The IMD has forecasted ‘normal’ monsoon rainfall this year, but it has historically under-estimated deficiency. Possibility of a weak El Niño stays afloat despite forecast downgrades
• If El Niño turns out to be weak/short-lived or positive IOD plays out, this could aid monsoon rainfall in India, although not all El Niño years have been deficient rainfall years
• Spatial and temporal distribution of monsoon rainfall alongside timely crop sowing matters more than headline numbers. Any major delay in sowing could reduce crop yield/quality/price-realization
• Pre-monsoon rainfall and/or reservoir levels are deficient in states such as Uttar Pradesh, Maharashtra and a few southern states, which play a crucial role in kharif season crop production. Further deficient rainfall here could impact agri production
• Concentration in top-five producer states is the highest for pulses, followed by coarse cereals, which increases the impact of deficient rainfall in key states on production. Rice production is better distributed
• Any serious shortfall in monsoon rainfall would most likely impact agri production and private consumption expenditure more than food inflation. The food-inflation impact of monsoon rainfall has been waning more recently due to abundant cereal stocks, higher impact from perishables, government supply side measures and the meagre weight coarse cereals have in the CPI basket
• In addition to the above factors, it is important to keep track of global grain prices which have been falling, government rice stock levels which are more than sufficient, farm input costs which could move in line with crude oil prices and agri exports which have stayed relatively flat.
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