The World Bank says global food prices fell for six months in a row till February. However, food prices still remained uncomfortably close to the August 2012 peak levels. Not only were February prices just 9% lower than the August high, the possibility of volatility in the world food market remains. This is because the US drought and dry spells in several major crop growing countries could upset supply calculations. At the same time, the World Bank quarterly food price watch report says “reported favourable weather conditions in some regions have also raised hopes of better crop supply for 2013.” For example, the Indian monsoon, which accounts for around 75% of the country’s rainfall is to be normal for the third time in four years with chances of a drought pegged at only 4%, says Skymet Weather Services chief executive Jatin Singh. India being either the world leader in production of pulses, jute and milk or the second largest global producer of wheat, rice, sugarcane and vegetables and fruits, its farm production performance in a year leaves an impact on world food prices.

A quick run through of foodgrain production in 2011/12 (July to June) and the second advance estimate for the current season will give a fair idea of how heavily dependent Indian agriculture continues to remain on the south west monsoon (June to September). This is because more than half the cultivated area remains monsoon dependent. During 2011/12, India had foodgrain production of 259.32mt (million tonnes), including105.31mt of rice, 94.88mt of wheat, 42.04mt of coarse cereal and 17.09mt of pulses. As a result, stocks of rice and wheat held by government agency Food Corporation of India (FCI) on 1 January was 66.6mt, a 20.24% year-on year rise. A bumper production year always presents Indian authorities with the challenge of finding adequate storage space for keeping foodgrains in good order. At one stage in 2012, the government had to contend with storing a whopping 82.317mt of surplus while storage space at its disposal was 34.2mt.

“It is a common post-harvest scene in north Indian states that millions of tonnes of wheat and other crops will be lying in the open, maybe with a plastic cover thrown here and there. I have been pleading with the government that instead of letting grains rot in the open, we should export what we can’t store properly. But nothing is to be done at the cost of food security, which remains our prime concern. If a good crop year with stocks overflowing is followed by a difficult year, we can always import any quantity. Such trade flexibility has potential to very substantially reduce the extent of damage to foodgrains in times of plenty, as it will transfer the cost of storage to overseas buyers. This may still be a novel idea here where food remains a highly sensitive issue, but many other countries have practised it with success,” says industry official Om Prakash Dhanuka. Many economists, including Nobel laureate Amartya Sen favour free distribution of a good portion of surplus foodgrains among the people below the poverty line. In the meantime, the government trying to come to grips with the storage problem has launched private entrepreneurs guarantee scheme to facilitate construction of storage godowns, with FCI guaranteeing ten-year usage.

The dependence of Indian agriculture on monsoon rains being inordinately high, it is natural that the 2012 south-west monsoon rainfall being 8% less than the long-term average will leave a negative impact on production. If drought in parts of the country, including Maharashtra and Karnataka hit production of summer crop (mainly rice), winter rains with wheat crop standing in the field would do some harm to harvest. So, the country is reconciled to foodgrain production taking a dip for the first time in four years in 2012/13 to 250.14mt, including 101.8mt of rice, 92.3mt of wheat, 38.47mt of coarse cereals and 17.58mt of pulses. Should the country be too worried then? Indian Planning Commission member Dr Abhijit Sen says, “it is a decent estimate for agricultural production given that we had a bad monsoon year. I would say it is not negative. In fact, I expect an upward revision when the final estimates are out.” He may well be proved right on wheat, which was planted in over 298m hectares. Directorate of Wheat Research chief Indu Sharma says in spite of scattered rains and thunderstorms doing some damage to about 2% to 3% of wheat growing areas,“expect production to be higher than last year at 96mt.”

Parliamentary elections are about a year away and the last thing that the ruling coalition can afford at this stage is raging food inflation because of poor supply side management and misconduct of people in layers of agencies between farmers and final consumers. If the government does not let the initiative slip away and stays focussed on managing the available stocks, then food inflation can be controlled. Says Ashok Gulati, chairman of the Commission of Agricultural Cost and Prices, “production this year is likely to be lower. But it can be easily managed using the stocks. Procurement of crops is expected to be higher than last year at 42mt. It is high time we had efficiently channelized the stocks to keep prices in check.”

In the meantime, according to a Bloomberg median of estimates by half a dozen exporters, a government official and an industry executive, India’s rice exports in the financial year that began on April 1 will rise 5% to 10.5mt. Record exports in

2013/14 are to happen on the back of a likely all-time high rice production of 110mt aided by normal monsoon. Bloomberg notes,“surging exports from India may add to global food supplies as farmers from Vietnam to China are preparing to plant a record rice crop.” As for India’s rice exports, the long-grained aromatic basmati rice account for about 25% of total sales. In recent years, many clones of basmati rice have appeared. But these do not even come close to the original grown in India and Pakistan. Besides India, other major rice growing countries will also be harvesting bigger crops to lift global production by 1.2% to 472mt. So for yet another season, world rice supply will stay ahead of demand.

What then will be the impact on prices? According to Concepcion Calpe, secretary of FAO intergovernmental rice group, “prices may be depressed if Thailand starts putting a lot of supply in the market and India continues its exports... Vietnam has a lot of supplies and Myanmar is also trying to gain more markets.” Bloomberg says in a report published on March 5 that “prices in Vietnam, an Asian benchmark will drop 6.6% by December to $377.50 a tonne, the lowest level since 2010.” In spite of India missing the 11th plan (2207/12) farm growth target of 4% by a small margin, the country remains in comfort zone for two cereals — wheat and rice. For the current plan period, the farm growth target is once again 4%, which the country is desperate to achieve by ensuring development of new strains of rice and wheat. Otherwise, productivity decline will start.

At this juncture, a nagging concern for India, which is seeing red over the growing current account deficit, is the rising import intensity of edible oils. For example, in the first quarter of 2012/13 oil year (November to January) Indian imports were up 27% to 2.77mt year-on-year.

Thanks largely to growing imports that per capita availability of edible oils in India climbed from 5.8kg in 1992/93 to 14.5 kg in 2010/11. Confirmation of the phenomenon is there in the Economic Survey for 2012/13, which notes that for half its oil requirements, the country remains import dependent. The devil here is poor oilseeds productivity of about 1,000kg a hectare, that is less than one-third of the best found in the world. What, however, is going to make any significant productivity improvement difficult is the small average farm size of 1.55 hectares.