India Economy

A good monsoon doesn't always mean lower commodity prices

Updated on: Jun 02, 2012
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Increased production spurred by good rains does not necessarily result in lower prices at the farm-gate

A good monsoon always brings cheer around the country. With the average Indian family budgeting 30 per cent of its income on food, normal or deficient rainfall could mean the difference between full plates and empty stomachs.

The agriculture sector accounts for 17 per cent of the Gross Domestic Product and provides livelihood to 60 per cent of Indian citizens. In this regard, given that more than 177 out of 612 districts in India are dominantly rain-fed, the monsoon is of great significance for the Indian economy from a production perspective.

But despite popular perception, rainfall does not appear to play a decisive role in prices of agricultural produce. Increased production spurred by good rains does not necessarily result in lower prices at the farm-gate. Neither does a situation like the drought of 2002 always result in a spiralling increase in the prices paid to farmers for agri-commodities.

The trend of recent years points toward inflation being driven by factors beyond production and the main culprits are commodities outside the public distribution system (PDS).

Large food stocks have co-existed with high food inflation, indicating that the shift in consumption pattern is mainly driving inflation in food products. Manufactured items such as edible oil, dairy items and grain mill products, besides cereals and pulses, fruits and vegetables have registered a steep increase in demand. The resulting increase in prices has contributed to food inflation in the country. Speculative trading and hoarding too skews the demand-supply dynamics. The government has also increased the focus on irrigated agriculture, thus reducing the impact of rainfall on agri-prices.

Given below is the price behaviour of some crops that figure in Indian consumers' diets to discern the relationship between rainfall and product prices.

Groundnut : This commodity is used for making edible oil, besides being consumed and exported. It has a weight of 0.39668 per cent in the wholesale price index. It is mainly grown in Gujarat, Andhra Pradesh, Chhattisgarh and Himachal Pradesh. In 2003-04, the price of groundnut rose by 4 per cent following the drought of 2002.

But in 2009-10, prices rose by nearly 9 per cent; Gujarat received rainfall that was 34 per cent below normal in this year. In 2010-11, when rainfall was normal, the wholesale price rose by almost 13 per cent.

Gram : With a weight of 0.33490 in the wholesale price index, this commodity is mainly grown in the states of Maharashtra, Uttar Pradesh, Orissa and Madhya Pradesh.

In 2003-04, the price of gram declined by 2 per cent in Maharashtra despite the drought in the previous year. But it had declined by 2 per cent in 2002-03 as well.

The price of gram fell by nearly 10 per cent in 2008-09 (a normal rainfall year) and by another 6.8 per cent in 2009-10, a deficient rainfall year. In 2010-11, the wholesale price of gram fell by 1.4 per cent amid excess rainfall.

Maize : This crop has a weight of 0.21727 in the wholesale price index and is mainly grown in the states of Andhra Pradesh, Karnataka, Bihar, Madhya Pradesh and Himachal Pradesh.

In 2003-04, the price of maize declined by 7.6 per cent in Madhya Pradesh despite drought in the previous year.

In 2008-09, maize prices in the State rose by 133.8 per cent compared with the previous year due to 21 per cent deficient rainfall in Western Madhya Pradesh, though eastern Madhya Pradesh received surplus rain.

They increased by another 11.6 per cent in 2009-10, when western MP received a 27 per cent below normal monsoon and eastern MP got 33 per cent less rain. In 2010-11, wholesale maize prices rose by 10.1 per cent, though the state witnessed normal rainfall.

Potato : This commodity has a weight of 0.20150 in the wholesale price index. The major producers of this crop are the states of Uttar Pradesh, Punjab, Haryana, West Bengal, Madhya Pradesh, Bihar, Andhra Pradesh, Tamil Nadu, Gujarat, Assam, Karnataka and Uttaranchal.

In 2003-04, the price of potatoes in Tamil Nadu surged by 22 per cent following a drought in the previous year. The prices declined by 2.8 per cent in 2008-09 when the country received normal monsoon, but then spiked 20 per cent in 2009-10, even though the state experienced a normal monsoon.

arvind.jayaram@thehindu.co.in

Published on June 02, 2012

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