The latest
forecast of Monsoon rains in India by the Indian Meteorological department has
worried the Indian farmers as well as the consumers. The goodwill of the government
is also on stake as it will have an uphill task to contain inflation if the
forecast come true this year.
This article
analyses the previous trend in the monsoon rainfall, changes in production of
commodities and wholesale price index to gauge the likely impact on the common
man.
First of
all let us highlight the main features of the Latest Monsoon Forecast for India
for 2015 which was released by IMD on 2nd June 2015.
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Ø Rainfall over the country as a whole for the 2015 southwest
monsoon season (June to September) is likely to be deficient (<90 lpa="" of="" span="">
Ø Quantitatively, monsoon season rainfall for the country as a
whole is likely to be 88% of the long period average with a model error of ±4%.
[THAT MEANS AROUND 12%
DEFICIENT RAINFALL]
Ø Region wise, the season rainfall is likely to be 85% of LPA over North-West
India, 90% of LPA over Central India, 92% of LPA over South Peninsula
and 90% of LPA over North-East India all with a model error of ± 8 %.
Ø The monthly rainfall over the country as whole is likely to be
92% of its LPA during July and 90% of LPA during August both with a model error
of ± 9 %.
Ø The
rainfall over the country as a whole is likely to be 92% of its LPA during July
and 90% of LPA during August both with a model error of ± 9 %.
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·
Thus, as of now, there is clear indication that this year’s
monsoon is likely to remain deficient by around 12% on country level.
·
States like West UP, Punjab, Haryana, Rajasthan, Madhya Pradesh
and Maharashtra are likely to be affected more than the other parts of the
country. The deficiency may remain in the range of 15 to 10 percent in these
states.
·
Last year too, country witnessed a 12% deficient rainfall. Thus this
will be the second consecutive year which will witness less rains in the
country.
·
This indeed is a matter of worry despite the fact that the country
has ample foodgrain buffer stocks with the government and Sugar supply is ample.
Market
react more on the future event rather than the current facts. Thus in spite of comfortable
food grain availability, the possibility of commodities price rise has increased
sharply.
Here we will
see empirically what has happened during past years when such type of situation
emerged. Based on that we will try to draw some conclusions about the likely production
scenario and expected price rise for this year for some important commodities.
A : IMPACT OF RAINFALL ON PRICES OF COMMODITIES
In
India a vast part of the cultivable land is totally dependent upon monsoon
rains. The monsoon rains are one of the most important factors that determine
the production of crops. Thus supply and demand factors determine the prices.
Table1
and Fig. 1 present the trend in the rainfall departure and percentage change
in the Wholesale Price Index in India for the last 9 years.
Observations:
- From 2005 to 2008, not much
deviation in rainfall from the normal range was seen. Thus prices in
general (with some exception) have remained more or less stable or even
declined in Cereals, Pulses, eggs, meats & fish, condiments and spices
and sugar. However in Oilseeds the prices remained very high.
- In Year 2009, where rainfall
deficiency was very high (-21.8%), the immediate impact on prices of the
commodities was seen. Prices of Cereals witness a moderate rise, while a significant jump in prices of Pulses, Vegetables, Eggs, Meat & Fish,
Condiments & Spices was seen.
- SUGAR PRICES ROSE EXCEPTIONALLY
HIGH BY 48 %.
- In year 2010 and 2011 monsoon rains
recovered and were in surplus, the prices came down in cereals, pulses, and
sugar.
- In Year 2012, again prices rose
substantially in Cereals, Pulses, oilseeds and sugar.
Inference:
- Thus prices of Cereals, Pulses,
Oilseeds and Sugar have seen more and direct impact of deviation in the
monsoon rainfall.
- The vegetables are perishable and
nature and spices are mostly perennial, thus the impact of rainfall deficiency/surplus
cannot be generalized.
B: IMPACT OF
RAINFALL ON PRODUCTION OF COMMODITIES
Table 2 presents the trend in the rainfall as well as the
production of important commodities for the last 10 years. The %age change in
the production with respect to the previous year is also given.
Observations:
- The production years 2009-10, 2012-13
and 2014-15 have seen deficient monsoon rainfall in India. The extent of
deficiency has remained in the range of
-21.8%, -7.1% and -12%
respectively in these years.
- The production of Cereals,
particularly Rice and Wheat, Pulses, Oilseeds and Sugar has seen
significant decline in the deficient rainfall years. The extent of
production decline has roughly remained in the range of 5-16% in these
commodities.
- In year 2014-15 which witnessed around 12% rainfall deficiency, the significant production decline in Cereals,
rice, wheat, Pulses and Oilseeds was seen.. Herver sugarcane area witnessed marginal increase.
Inference:
- Even a rainfall departure of around 10% from normal
rains results in to production fall in the range of 5 to 15 Percent in
many commodities.
- Given the fact that this year’s rainfall deficiency in
the range of 12% (equal to last year’s range), we assume that production
of cereals, rice, wheat, pulses and Oilseeds may reduce by -5. -4, -5, -10,
-16 % respectively as compared to last year’s figure. [ i.e fall in
production of these commodities may be at least in the same proportion as
was seen during 2014-15].
- However, we expect that sugarcane production may decline
by more that 5% as compared to last year’s figure because this crop
requires more water and is largely grown in the North-west UP and Maharashtra where the expected monsoon deficiency is around 15%.
Conclusion:
- The agricultural
commodities production is expected to decline straight in the second
successive year due to weak monsoon rains. The extent of production fall
may vary in the range of 5 to 15% among various commodities including
cereals, rice, wheat, pulses, oilseeds and sugar. This figure may further
rise if the monsoon deficiency
range further increases in the June – september period.
- The prices
of agricultural commodities are likely to increase substantially during
2015-16 period due to less production and increased demand.
- Oilseeds
and Pulses seems more vulnerable in terms of price rise. If sugarcane area
substantially reduce this year then Sugar prices will start witnessing
improvement and sugar will emerge a major commodity which will witness
significant price rise in 2015-16.
