India’s winter crops damaged by unseasonal showers and hailstorms 

Food price inflation pinches at least half the 1.25bn Indian population hard. This is of much concern to the government of the day. Weather behaving untowardly at crucial points of crop growing and harvesting leaves the government in jitters. This has happened now as some strong showers and hailstorms through most of March have left winter crops like wheat in particular and also pulses, rapeseed and potatoes damaged in as many as 14 states across the country’s north and the centre. This agriculture season (July 2014 to June 2015), 61m hectares were committed to winter cereals and about 2m hectares to fruits and vegetables. Based on land use and weather behaviour ahead of heavy rains in March, the government in a second advance estimate released in February scaled down likely wheat crop output to 95.76mt (million tonnes) from last season’s 95.85mt. But the scene has turned worse since.

The saving grace is following a video conference between the prime minister’s office (PMO) and untimely rain affected states and some rapid field assessment of damage, it appears winter crops and also vegetable and fruit farms have taken a hit in up to 11.4m hectares and not 18.1m hectares as was feared earlier.

Of the total affected area, the major winter crop wheat suffered at over 6.2m hectares out of a sown area of 30.6m hectares. According to initial reports from states coming under the spell of unseasonal rains, winter wheat production could be down between 4% and 5%. The country may harvest around 91mt if the damage is taken at 5%. What, however, is not to be ruled out at this stage as harvesting has begun that the wheat crop could be even lower.

Awaiting a comprehensive assessment of the extent of crop damage by government agencies, leading farm industry official Om Prakash Dhanuka says,“Unfortunately unseasonal heavy downpour happened just ahead of wheat crop harvesting. I understand the top high protein wheat producing states of Madhya Pradesh and Rajasthan have suffered the most.” No wonder, no sooner did Indian flour millers come to know of the crop setback, they bought over 80,000 tonnes of Australian prime wheat for April–May shipments at prices ranging from $260 to $265 a tonne, including freight. All the orders combined make it the biggest wheat import by India since 2010 when, according to US Department of Agriculture, the country bought around 200,000 tonnes. Purchases since then were low because of regular good domestic production. India being the world’s second-biggest producer and consumer of the grain, any significant purchases by it following crop setback cannot but cause a price rally as was seen this time in the movement of benchmark Chicago prices. Besides lingering uncertainty about the Indian wheat crop, size and quality wise, the world market has concerns over dry weather and rising temperatures negatively impacting the US winter crop.

Will unseasonal rains causing yet-to-be estimated damage to Indian pulses production not lead to higher imports than is generally the case? India is the world’s largest producer,  consumer and importer of pulses, a key source of protein in vegetarian diet. According to India Pulses and Grain Association, the country’s annual requirements of all kinds of pulses are around 23mt while domestic production, depending on how much land is committed to pulses in a season and behaviour of weather, ranges from 18mt to 19mt. The gap in demand and supply is met by imports mainly from Australia and Russia. But regular imports are also made from Ethiopia, the US and Canada.

Though duty free imports of black and white chickpeas are allowed to avoid shortages developing at any point, the government keeps an eye to ensure that under the weight of imports, locally produced pulses prices do not sink below minimum support prices. The national objective is to step up pulses production from the same land generally available to the crop by raising productivity through improved farm practices. To engage farmers proactively in a crop, returns for their efforts and investments have got to be adequately rewarding. In the case of pulses, the government is playing the role of arbiter between the demand of traders to maximize imports and local farmers’ legitimate expectation of remunerative prices.

In the meantime, New Delhi has constituted a ministerial group headed by home minister Rajnath Singh to decide the financial compensation to be given to farmers whose crops got damaged by unseasonal rains. Agriculture minister Radha Mohan Singh admits that “the current assistance given to farmers in distress under the government’s disaster relief fund is inadequate. This needs to be raised.” Farmers should not only be compensated for the crop loss but they should also be helped to get ready to grow the next crop. New Delhi claims all Indian states have adequate money under State Disaster Response Fund to bail out farmers when disasters like March heavy rains occur. Moreover, the federal government has announced its readiness to make available additional funds to states if need be. Whatever the reason, the government headed by Narendra Modi has a distinctly pro-industry and anti-farmer image. The crop loss provides the government with an opportunity to correct the perception by suitably raising the compensation amount and also disbursing it quickly.

“India’s buffer stock of wheat and rice during most part of a year is well above the norm the government itself has set. This no doubt is the result of fairly rich harvests in recent years and the government’s massive food procurement programme. Food security at all times and compulsion to make available 61.4mt of food grains under various welfare schemes at highly subsidized rates underpin the need to maintain minimum inventories, but which need to be scientifically worked out,” says Dhanuka.

“When food grain inventories exceed the benchmark, more than one problem arises. First, in the absence of adequate and proper storage facilities, wheat and rice are exposed to nature leading to an unacceptable level of wastage. Second, with overflowing grain stocks resulting largely from lack of commercial judgement, the Exchequer already under stress comes under compulsion to finance more than the needed inventories. Third, it is not that such large wastage as seen in India and loss of quality are not avoidable,” argues Dhanuka. He questions whether it would make sense for the country to actively engage in export in times of bumper harvest to avoid the cost of surplus food grains maintenance but hedge simultaneously for buyback if shortages in future warrant?

Dhanuka’s argument makes commercial sense. But the government needs strong political will to ask its own trading houses like STC and MMTC and carefully chosen similar private enterprises to engage prudently in sales, hedging and buyback of farm commodities. That wheat production this year will fall short by a few million tonnes of an estimated consumption of 94mt is now a given. But that is not of concern since the government held stocks of close to 20mt at March beginning against buffer requirement of 7mt. The concern is about quality of the new crop and the challenge is surplus food management.

The crisis that has befallen the Indian sugar industry, the world’s second largest after Brazil, would have been largely avoided if New Delhi had supported exports by giving adequate but WTO compliant subsidy to exports of raws and discouraged imports by way of penal customs duty. Indian sugar factories owe cane supplying farmers nearly $3 billion because of sugar prices not even fully compensating the cost of cane, not to mention wage bills and other cost components. Not only are all sugar companies across the board in the red, the industry has ceased receiving fresh investments in modernization and capacity expansion. “The only way for India to export is for government owned trading houses STC and MMTC to buy sugar from factories at production cost at least and then sell it in the world market. That way, the industry will be relieved of a portion of inventory burden and the local market sentiment will somewhat improve in turn,” says Dhanuka who owns a factory in Bihar. The May delivery raw price on New York’s Intercontinental Exchange (ICE) is trading at well below 13 cents a pound.

But why are sugar prices trading at multi-year lows? Recall February 2011 when sugar futures traded at 36.08 cents a pound. Since then, sugar made quite a few peaks and lows. As the commodity is facing headwinds on more than one count, it could still seek lower prices. First, according to US Department of Agriculture, the world sugar production in 2014/15 (October to September) will be an estimated 175.59mt against actual output of 175.7mt in the previous year. What will put pressure on prices is the expected current season ending stocks of 44.4mt. Remember nearly 80% of sugar is extracted from cane and the balance from beet. Cane crop being perennial in nature, it is not easy for growers to switch to other crops when returns like now are poor. The Brazilian currency being at 12-year low, the South American country Brazil, the world’s largest exporter of sugar, now has an extra incentive to sell aggressively in the world market. Finally, where is the incentive to produce biofuel from cane when oil prices are trading this low? So more and more cane for producing sugar.

In the meantime in a break from a regular rise in Indian agro exports since 2010 financial year, the year ended March 2015 saw exports slipping by $3bn from $32bn. Fall in agro exports of this order did not impact the country’s trade balance much because of sharp falls in oil and gold prices. But Indian farmers did take a hit as lower agro exports had a bearing on prices and therefore, on their income.