The Hindu Business Line : Govt needs to come up with precise crop estimates

The Union Government's crop estimates are almost always taken with a pinch of salt. Wide variations between official estimates and trade estimates of crop size have been common. We are also familiar with minor variations from one estimate to the next in the same season.

Admittedly, crop estimation is a tricky exercise and there would always be scope for fine-tuning and perfection. One would, therefore, expect that those responsible for data compilation would bring certain seriousness to collection, collation and analysis.

The Centre, on its part, tries to justify its policies relating to markets and prices of essential commodities based, among others, on official crop estimates. This obviously puts a great responsibility on the policymakers to ensure that crop estimates are as accurate as possible. But the attitude is one of indifference and casual approach to crop estimation.

Major letdown

The crop estimates for 2005-06 (fourth advance estimate was released by Ministry of Agriculture recently) must be regarded as a major failure of the Government to come up with reasonably realistic data on various agricultural crops well in time.

The extent of variation from the first estimate to the fourth is simply too large for anyone's comfort and imagine, if the Government's response to markets and prices is dependent on the official crop numbers, how inappropriate the policy response would be.

The policymakers perhaps have no idea how commodity markets function. When the demand-supply situation is tight (no big surplus or deficit), even a small change in supply or demand can have a disproportionately large impact on open market prices.

Wide variation

This is exactly what has happened in case of wheat and pulses, in particular. Had the Government taken cognisance of this market feature in time, policy responses could have been more mature and the price escalation could have been arrested to a large extent.

In all the major crops, a wide variation between the second and the fourth estimates is seen. Wheat is the worst case, with output estimate having been pared from 73 million tonnes to 69.5 ml.t.

It was clear, as early as February/March this year, to those closely following the grains sector that wheat production would not be anywhere near 73 ml.t., but could be 70 ml.t. or at best 71 ml.t. Indeed, the trade has been working on the basis of crop size of 70 ml.t. Low level of stocks with Food Corporation of India was also a bullish factor.

Ignorance or Intentional?

Either the policymakers were ignorant about the crop size or deliberately overstated it initially. The consequences are there for all to see. Fall in actual output has resulted in lower procurement and sharply rising prices of wheat.

The official response has been knee-jerk, including delayed announcement of bonus and opening up of imports. But, in the meanwhile, enough damage has been done to consumer interest.

The case of pulses can qualify to be labelled as even worse than wheat. The output estimate has been scaled down by a massive 10 per cent or 1.3 mt from the second to the fourth estimate. It is common knowledge that the country faces a chronic shortage of pulses and is the world's largest importer.

Sugarcane's case

On the other hand, the case of sugarcane is peculiar. The first estimate of cane crop released sometime in October 2005 placed the crop size at 258 mt. At the same time, the Government asserted that sugar production for 2005-06 would be 18 mt. After Business Line pointed out that the estimated size of cane crop would not result in production of 18 mt sugar, the second estimate raised the cane crop size to 266.9 mt. Further hikes were shown in third and fourth estimates.

The latest sugarcane crop estimate raises an important question. If the cane output was actually 278.4 mt as assessed by the Agriculture Ministry and recovery, as asserted by officials and industry from time-to-time, has been high, then there should be no shortage of sugar in the country.

The Government's latest estimate of sugar production is 19.1 mt. If it is so, there was no need to fear a bullish trend in sugar prices, nor was there a need to ban exports and allow imports liberally. In other words, there is little logical nexus between the official crop estimates on the one hand, and market prices and trade policy responses, on the other.

Someone in New Delhi must assume responsibility for the fiasco. The credibility of the Government is at stake.

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