News
El Nino, India, and the risk of food shortage
Summary
With India being a large producer and top exporter of several key crops, it could emerge as a supplier of food to several countries amid shortages, should it have its own sufficient buffer stocks in place.
For a phenomenon tenderly named after “little boy" in Spanish, the El Nino’s monstrous spectre presents a strange irony. Its return after seven years has brought the risk of both drought-like situations and heavy rainfall, depending on where you live. Coming just over a year after the Ukraine war choked food supplies, expect the El Nino of 2023 to potentially reverse the recent relief in inflation. At particular risk of low output are crops in India, Indonesia, Brazil, Vietnam, and Australia, among others.
In India’s context, too, analysts say crop production could be hurt in case of severe El Nino conditions. Generally, El Nino affects India’s kharif crop production. “We're expecting some productivity decline for cotton, pulses and oilseeds on expectation of low rainfall during August and September on account of El Nino," said Pushan Sharma, director of research at CRISIL Market Intelligence.
The Food and Agriculture Organization has warned of reduced food availability in regions such as Central America, the Caribbean and Southern Africa. Rice and wheat supplies globally could face shortage once again—and India’s role as a key exporter could prove crucial if it has sufficient buffer stocks. Apprehensive of the impact on sugar, of which India is a major producer, the government is even considering a cap on its exports until the first half of the next season, according to media reports.
At the same time, heavy dependence on imports of some commodities such as palm oil could expose India to global inflationary risks. It will be imperative to find alternative sources for these imports, said Sharma.
Bleak outlook
El Nino generally leads to drier conditions in Southeast Asia and Australia, which puts at risk critical crops from countries in these regions, some of which are key trading partners. The scorching heat is expected to impact yields of crops such as rice, wheat, palm oil and coffee.
Australia, the second-largest wheat exporter, is officially expecting a 33.9% drop in wheat harvest, to 26.2 million tonnes in the 2023-24 (October to September) season. Similarly, palm oil production is likely to suffer in Indonesia and Malaysia, while rice output could be hammered in Thailand, experts say. A mild El Nino could reduce Malaysia's palm oil production by 10%, while a severe one could drag it down by as much as 20%, the Malaysian Palm Oil Board said in May. Other crops likely to be impacted included coffee (particularly robusta variety), soybeans, and corn. All these possibilities could have an impact on India’s own trade patterns this year.
Trade impact
India imports 56% of its edible oil needs, with huge reliance on imports from Indonesia and Malaysia, where El Nino could hurt palm oil production. India could then opt for alternative sources like soybean oil from Brazil as it is expected to receive good rainfall and get a bumper soybean crop, Sharma said.
Paddy, a major crop produced by Indonesia and Vietnam, could also witness a decline in production. Being the second-largest rice producer in the world, India can help these regions meet their deficit if it first procures enough to meet domestic demand. "Our key crop during the kharif season is paddy and it has a long sowing window till the end of July," Sharma said. “We expect an increase in acreage, so there might not be any significant impact on the crop. In fact, we are expecting paddy production to be higher on a low base, since the crop was damaged last year," Sharma said.
GDP woes?
Past occurrences of El Nino have been known to harm economic growth, costing tens of billions of dollars in direct impacts. The World Meteorological Organization has said that there's a 90% chance that El Nino will continue during the second half of 2023. It also said countries should prepare and limit the impact on their economies. The Reserve Bank of India has expressed concern over the rising international prices of key food items like rice and sugar and said that the adverse climate events have the potential to quickly change the direction of inflation trajectory. It has projected a GDP growth of 6.5% for FY24. However, the International Monetary Fund has lowered its estimate of India's GDP growth in 2023-24 to 5.9%. For countries like Vietnam, Brazil, and Malaysia, the downgrade in GDP forecast has been much steeper, considering these areas are expected to suffer the major impact.
