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As the Southwest monsoon season nears its end, it may be time to take stock of output prospects and price situation as also plan for the months ahead. Despite prolonged absence of precipitation in July, rainfall across the country is currently normal, with 34 out of the 36 meteorological subdivisions recording excess to normal precipitation. This by itself is comforting. Acreage estimates put out by the Ministry of Agriculture for the kharif 2008 crops are indeed encouragi ng. While area under rice and to a lesser extent, oilseeds (mainly soyabean), has expanded, there is a decline in coarse cereals, pulses and sugarcane area coverage. In particular, acreage under kharif pulses such as arhar/tur, urad and moong is down by as much as 20 per cent. Cotton may not see a big jump in output unlike in recent years. It is almost certain that sugarcane production is set to decline by about 15-20 per cent.The extent of damage that July moisture-stress and more recently, floods in parts of the country (Bihar, Orissa) may have caused is as yet unclear. Overall, the sense is that the country’s kharif 2008 output may fall slightly short of the previous year’s record, except in case of crops such as rice. This by itself can exert upward pressure on prices.

The sharp hike of 30 to 50 per cent in the minimum support price for various crops is another factor that can change a potentially benign price sentiment. Fairly comfortable levels of wheat and rice stocks (close to 60 million tonnes) with the government are a source of strength. That New Delhi is keen to deploy these for market intervention is clear from the recent announcement of open-market sale of wheat. Fortunately, international agricultural commodity markets have corrected down in recent months because of improved supply prospects for oilseeds and vegetable oils as well as grains (wheat and rice) in 2008-09. This will cap the upside risk for domestic prices. On the other hand, a considerably weakened rupee is sure to lift the landed cost of imported edible oils and pulses. Without adequate imports, prices of these essential food items may spin out of control.

New Delhi must monitor the crop and market situation continuously to pick up early signals of price collapse or spikes in order to be able to step in with appropriate policy responses. Meanwhile, in order to improve the marketability of kharif crops, trade restrictions such as on storage deserve to be removed forthwith. Improved sub-soil moisture conditions by early-October would considerably brighten the prospects for major rabi season crops such as grains and oilseeds. Krishi Bhavan should now begin to focus on maximising the next season’s crop output.

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