India is heading towards a second straight year of deficient monsoon, fuelling inflationary expectations.
Meteorologists have predicted a below normal rainfall as inevitable due to cyclonic storm, Ashobaa, forming a depression over the Arabian Sea sucking most of the moisture from the Kerala and Karnataka coasts.
This slow progress of South-West monsoon is expected to affect production and therefore prices of food crops, hitting pulses production the most.
Pulses prices are skyrocketing because of lower production in 2014 on account of unseasonal rains and hailstorms before the harvest thereby affecting output.
The previous year saw a 30 per cent increase in the retail prices on account of 12 per cent rainfall deficit compounded by a dip in the pulses production from 19.7 million tonnes (mt) to 17.38 mt.
The vulnerability of agriculture to the vagaries of the weather has been exacerbated by the confirmation of El Nino pattern by the Australian Bureau of Meteorology. With an already weak domestic supply of pulses, the stress of matching demand-supply—due to the absence of buffer stock in the central pool—prompts massive pulses imports.
Paradoxically, India is the largest producer besides being the largest consumer and importer of pulses. With the Central Government’s announcement of imports to meet the demand and therefore, to control prices, a similar price increase is expected in the international markets. This is almost certain because India drives pulse prices to a large extent.
Food inflation According to the 3rd Advanced Estimates of Ministry of Agriculture, there is a contraction in foodgrain production by more than 5 per cent vis-à-vis the previous year, particularly due to the damage of crops like pulses and oilseeds.
As has been forewarned by the Bi-Monthly Monetary Policy, crop failure is putting an upside tick to the food inflation. Weak monsoon coupled with inflationary expectations are likely to lead to protein inflation, as the new CPI allocates a weight of 2.65 percent to pulses production.
As observed by Consumer Price Index, prices of pulses have increased by 6, which however, do not benefit the farmer much.
Measures to cushion With the increase in prices being pushed by the traders/aggregators, who act as the link between the farmer and the consumer, the farmer is left facing uncertainty in growing the crop. The Contingency Plan of the Ministry of Agriculture to sell pulses at subsidized rates in case of shortage of domestic supply is however challenging.
With the Centre planning for large scale import of pulses to meet the increasing protein demand of the country, it becomes imperative to supply the imported pulses at a subsidised rate, at least in the near future, for the staple to be affordable.
Besides checking the price spiral and speculative hoarding practices, the Centre’s move of importing pulses, is only a short run solution. A long term solution, however, would be to increase productivity and promote awareness of short duration pulses.
Short duration crops, for instance, moong bean requires eight times less water than the water-guzzling crops like rice.
By minimising the crop losses due to untimely spring rains and reducing the sowing-harvesting cycle, short-duration crops prove to be economically more sustainable than imported crops.
As also opined by the Agriculture minister Radha Mohan Singh, sowing of short duration crops such as moong bean and pigeon pea (arhar) would be an effective way-out of the crisis.
Monsoon & Price
For the near future, it is recommended to enter the international markets only when there is adequate supply with them i.e. when they infuse fresh stocks in their respective markets.
Such a strategic move could cushion the country from paying exorbitant prices and the benefit could be passed onto the final consumers.
To substantiate our previous reasoning that erratic rainfall will impact the prices of pulses, we checked the relationship between the prices and the monsoon data.
A closer look at the numbers revealed negative correlation between pulses retail price and monsoonal rainfall.
Separating the drought years (2004-05, 2009-10 and 2014-15) from the normal years, we observed a significantly higher correlation (-0.75), indicating a massive jump in the prices in case of deficit in rainfall.
Caveat to these results is that the correlations recorded do not imply causation. However, the results point to an important reasoning that rainfall and crop (pulses) prices are interlinked.
With another year of drought in the offing, supply side management of the cropping patterns should therefore take into consideration deficient rains as significantly important variable.
This calls for another pulse mission that is broader than the national mission-pulses, as the farmer cannot be left to fend for himself.
The writers are working with Munjal Institute for Global Manufacturing, Indian School of Business. Views are personal.