Offloading stocks in short run, more GM in long run
Though weather forecaster Skymet has predicted a 25% chance of a drought following an El Nino condition, a clearer picture will emerge by June when the Met’s forecast is expected. Also, as a forthcoming Icrier paper points out, every drought year since 1980 has been an El Nino one, but not vice versa—1994 was an El Nino year but India’s rainfall was 10% above average. But 1991, 2002 and 2009 were both drought and El Nino years—though 2009 was the worst in that there was a 23% fall in rainfall, output fell 6.8%; in 2002, rainfall shortage was 19%, but output fell 17.9%. In other words, it’s difficult to say what the impact on output will be.
Some general points, though, can be made. As cereal output is mainly in northern India, where a lot more of the land is irrigated—it helps that current reservoir levels are a third higher than last year—the impact could be lower than in the past. Also, given India’s foodgrain stocks of 48 million tonnes are more than twice what is required, these can be drawn down safely. Indeed, if grain stocks are to be dumped in the market, cereal inflation can also be brought down hugely—it remains a mystery why this has not been done so far in the face of high cereal inflation. There will be a big problem in terms of vegetables as well as edible oils, the latter are grown in Western India that could bear the brunt of the lower rains—though 55% of edible oils are imported, El Nino will also hit production centres in south east Asia; cutting the 10% import duty to zero may be called for. There is, of course, the role of expectations—in FY10, Crisil points out, while agricultural output rose 0.8%, WPI food inflation rose a whopping 15.3%. The retail impact will be greater—cereals have a 14.6% weight in CPI, fruit/vegetables another 7.3% and pulses and oils 6.5%.
While dumping cereal stocks are the only short-term solution, long-term solutions involve aggressive use of GM technology to get drought- and flood-resistant seeds and to increase storage capacity—there is a 30 million tonne shortage of cold storage capacity, though building this up is related to issues like more organised front-end retail outlets and FDI levels in them. India needs to waste less in fertiliser/water/electricity subsidies and, instead, use the money to create more irrigation facilities to mitigate the impact of droughts/floods, as has been done in north India. As the BJP’s prime ministerial hopeful’s campaign slogan goes, more crop per drop.