Indian agriculture has been fortunate to have good monsoons for the last four years. This helped ensure that not only was agriculture the only sector largely unaffected by the pandemic, but it also provided shelter to many who lost their livelihoods during the crisis. It appears that this streak of luck is finally coming to an end with a deficient monsoon likely due to strengthening El Nino conditions. The forecast made by India’s official meteorological department has been cautious, but estimates by most private and foreign weather agencies suggest a strong chance of deficient rainfall this year.
The full impact of El Nino will be known later, but the adverse weather has already started affecting agriculture. According to most estimates, wheat production fell by 10% last year due to the heat wave, although official estimates put it at 5%. The situation is also likely to contribute to lower yields this year. With unseasonal rains destroying some standing crops, most private estimates suggest a drop in production of around 10%. Monsoon is also likely to impact the rice crop, which was again estimated to be lower than our target and initial estimate. Rice production is estimated to be at least 5% less than the target, although official estimates indicate a slight decline.
With food inflation remaining high during the last year and a half, the erratic weather has already pushed up prices. Some of this was also due to global factors, including the Russia-Ukraine war and rising commodity prices. Recent inflation estimates released last week suggest that the peak may be past. While consumer price index (CPI) based retail inflation eased to 4.7% in April, wholesale price index (WPI) based inflation actually turned negative at 0.9%.
Inflation was expected to remain low given last year’s high base, but what helped bring it down was the active intervention by the government in bringing down food prices. The decline was essentially a result of a fall in wheat inflation, which had been running at 20% and higher through November 2022, but eased to 15.5% in April. Much of this was due to government-run open market operations. Under this, he launched about 34 lakh tonnes of wheat in the market between January and March this year. A sharp reduction in edible oil prices also helped. Inflation in the oils and fats group declined by 8% in March and 12% in April on a year-on-year basis. This again was the result of action taken by the government. It actively facilitates the import of cheap edible oil, mostly palm oil. The import of edible oil in this marketing year is 22% higher than the same number in the previous year.
However, in both the cases the farmers were defeated. The import of cheap edible oil has led to a situation that the current market price of mustard is 20% less than the minimum support price. Despite the government’s open market operations for wheat, procurement increased from 19 million tonnes to 26 million tonnes but is short of the government’s target of 34 million tonnes. This year’s total procurement is barely enough to meet the entire requirement of wheat for various government schemes, and is even less than the average of 28 million tonnes of wheat lifted in the last eight years for government programmes. Rice prices have already seen higher compared to last year; Inflation in rice is running above 10% since October 2022. International rice prices are still high and Southeast Asian countries are also likely to be affected by weak monsoon rains this year, given the potential dry-year effect of El Niño in tropical Asia, with rice expected to be the next driver of inflation. There is a possibility.
While inflation in several key commodities, including milk, is likely to threaten the food security of net consumers, especially those at the bottom of India’s distribution, this time the challenge is much greater; Even the cushion of the Pradhan Mantri Garib Kalyan Yojana (PMGKY) has not been available since the beginning of the year. Most of the poor households were insulated from inflation by the coverage of the scheme. However, even as net consumers such as daily wage workers suffer, farmers have barely benefited from the recent increase in food prices. With input prices rising faster than output prices, farmers are likely to see a drop in profits. With the weather also playing spoilsport, farmers may have to face the double whammy of both lower production and profits. Last but not the least, given their sensitivity to CPI inflation, they are also expected to bear the cost of inflation-marginalization. In the year ahead, the challenge for Indian policy is to ensure food security for all without compromising on farmer interests.
Himanshu is Associate Professor at Jawaharlal Nehru University and Visiting Fellow at Center de Sciences Humanes, New Delhi
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