Climate-resilient agriculture is the way forward

Will the weather Gods smile benevolently in 2011 unlike in the previous year? This vexing question is uppermost in the minds of Governments, agri-businesses and investors around the world.

A lot of uncertainty surrounds what's in store for the world over the coming months. It is for this reason that policymakers, especially in agrarian economies and food-importing countries, should have their ear to the ground and be ready with contingency plans.

No doubt, weather has always been a key driver of agri-markets, but 2010 proved it beyond doubt.

In a few short months, it caused production setbacks, slashed inventory built in the previous two years, spiked food prices and worse, left the world's poor facing elevated levels of food inflation, which many Governments are still fighting with limited success.

Weather events

The quick transition from El Nino to La Nina last year wrought havoc to many crops in different parts of the world. Experts assert that ENSO (El Nino/La Nina southern oscillation) weather events are caused by warming or cooling of the surface temperature of the Pacific Ocean.

Following extreme weather such as floods, droughts and other disturbances, farm output and quality was adversely affected.

It started with too much wet weather in Canada, followed by drought in Russia and the Black Sea region. Pakistan faced devastating floods and India experienced extended monsoon. Later in the year, weather disturbance moved to the southern hemisphere where La Nina-induced dry conditions started to affect planting in Argentina.

More recently, floods in Australia and Brazil, and closer home in Sri Lanka, have caused consternation. It is a matter of concern that in many agricultural commodities, the world has entered 2011 with extremely tight stock levels. This makes the food markets rather vulnerable to sharp price swings in the event supplies once again underperform.

Clearly, with the global stock-to-use ratios for commodities such as grains, sugar, natural rubber and cotton at historically low levels, these markets cannot afford further supply disruption.

ENSO models

The latest ENSO models, weather experts assert, show that the current La Nina will begin to weaken by the second quarter of 2011 and head towards neutral status (or La Nada) by the summer.

However, even with a mid La Nina, drier than normal weather can be expected in Southern America, a development that would threaten yields of soyabean, corn and sugarcane. In the event, prices of the commodities will continue to stay at elevated levels, if not rise higher.

At the same time, prolonged monsoon in Southern and Eastern Asia, as well as wet conditions in Australia and Central America, heighten the supply-side risks of commodities. While cotton, rice and natural rubber in Asia run weather-related risks, wheat in Australia and coffee in Central America can potentially get into trouble in terms of quantity and quality of output.

2010 saw prices of many commodities reach record levels. For instance, cotton touched an unprecedented 175 cents a pound, while sugar prices at about 34 cents a pound reached 30-year highs. Palm oil and soyabean oil are trading at elevated levels of over $1,200-1,300 a tonne.

Rabid financialisation

To be sure, one of the factors driving agricultural prices higher has been the rabid financialisation of the market. Too much speculative capital chases crops with limited supplies which drives up derivative prices on the bourses, which in turn raises physical market prices.

Cash markets and futures markets feed on each other and create a bullish spiral.

It is argued that it is impossible at this point of time to know whether La Nina will re-strengthen or continue to head towards an El Nino. A return to El Nino would trigger wet weather patterns in South America, but not in time to replenish soil moisture levels for the 2011 season's crop, it is believed.

Worse, El Nino-related weaker monsoon in Asia would hit next year's rice, sugarcane and palm oil harvests, exacerbating the current crop shortfall and risk raising food prices even more.

Inflation

Analysts believe, Governments in food importing countries will have a hard time controlling agricultural price inflation (known as agflation). They could engage in destabilising protectionists trade policies in order to prevent domestic prices from escalating further and avoid socio-political upheaval.

Negative use of trade polices (such as ban on export) started with India two years ago. Russia placed an embargo on grain export last July following drought. Nothing prevents other countries from picking up the cue.

Even as high food inflation is now a near-global phenomenon and Governments are using every trick in the book to contain rising prices, if weather Gods don't smile, 2011 could turn out to be a really nasty year.

Already the global policy environment is turning increasingly complex. Governments are in a dilemma, struggling to judiciously balance domestic political compulsions and international obligations.

Often, the former override the latter. Protecting the poor from the ravages of food inflation is extremely critical for a country such as ours.

Instead of taking the weather for granted, all stakeholders have to start working towards making agriculture weather-proof. It is known that tropical countries such as India are more vulnerable to the adverse effects of global warming and climate change.

So, climate-resilient agriculture is the way forward.

It is critical to evolve and implement policies that would ensure agriculture sector demonstrates robust growth rates in a sustained manner, so that the fruits of overall economic growth are equitably distributed.

Responses are invited from readers. They may be sent to > agri-biz@thehindu.co.in

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