Indian agriculture was lucky to have a good run of 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 refuge to many who lost their livelihoods during the crisis. It appears that this streak of luck is finally running out, with the likelihood of a deficient monsoon due to El Niño conditions getting stronger. The prediction by India’s official meteorological department has been cautious, but estimates by most private and foreign weather agencies suggest a strong likelihood of rainfall this year being in deficit.
While the full impact of El Niño will be known only later, adverse weather has already started affecting agriculture. A heat wave last year led to a 10% decline in wheat output by most estimates, even though official estimates peg it at 5%. The situation this year is also likely to contribute to lower yields. Along with unseasonal rain, which destroyed some of the standing crops, most private estimates suggest a decline in output of almost 10%. The monsoon is also likely to affect the rice crop, which again was estimated to be lower than our target and initial estimates. Rice output is estimated to be lower by at least 5% compared to the target, even though official estimates suggest a marginal decline.
Erratic weather has already led to price spikes, with food inflation staying elevated during the past year-and-a-half. Some of it was also due to global factors, including the Russia-Ukraine war and rising commodity prices. Recent estimates of inflation released last week suggest that the peak may be past. While the consumer price index (CPI)-based retail inflation declined to 4.7% in April, wholesale price index (WPI)-based inflation actually turned negative at 0.9%.
Inflation was expected to be lower, given the high base of last year, but what also helped bring it down was proactive intervention by the government in driving food prices down. The decline was essentially a result of a fall in wheat inflation, which was running at 20% and more since November 2022, but has declined to 15.5% in April. Much of this was due to the open market operations conducted by the government. Under these, it offloaded around 3.4 million tonnes of wheat in the market between January and March this year. What also helped was a sharp reduction in prices of edible oil. Inflation in the oil and fat group declined by 8% in March and further by 12% in April on an year-on-year basis. This again was a result of action taken by the government. It proactively let in imports of cheaper edible oil, mostly palm oil. Edible oil imports this marketing year are 22% higher than the corresponding figure of last year.
In both cases, however, farmers lost out. Cheaper edible oil imports have led to a situation in which the current market prices of mustard are 20% lower than minimum support prices. Despite the open market operations of the government for wheat, procurement increased from 19 million tonnes to 26 million tonnes but is lower than the target of 34 million tonnes set by the government. Total procurement this year is barely sufficient for the entire requirement of wheat for various government schemes, and it is also lower than the average offtake of last eight years of wheat for government programmes at 28 million tonnes. Rice has already seen higher prices compared to last year; inflation in rice has been running at more than 10% since October 2022. With international rice prices remaining elevated and Southeast Asian countries also likely to be affected by weak monsoon rains this year, given the possible dry-year effect of El Niño across tropical Asia, there is a likelihood of rice becoming the next driver of inflation.
While inflation in several key commodities, including milk, is likely to threaten the food security of net consumers, particularly those at the bottom of India’s distribution, the challenge is much bigger this time; even the cushion of the Prime Minister Garib Kalyan Yojana (PMGKY) has not been available since the beginning of the year. Most poor households were insulated from inflation by the scheme’s coverage. However, even as net consumers such as wage labourers suffer, farmers too have barely benefited from recent rises in food prices. With input prices rising faster than output prices, farmers are likely to see a decline in profits. With weather also playing spoilsport, farmers might suffer the double whammy of lower output and profits both. Last but not least, they are also expected to bear the cost of inflation-reduction, given the sensitivity to CPI inflation. In the coming year, the challenge for Indian policy is to ensure food security for everyone without compromising farmer interests.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi