A review of agricultural and monsoon conditions

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1 For the past 2 years India has experienced drought like conditions. This year the Indian Meteorological Department (IMD) has predicted that there will above normal monsoon. If monsoons this year are good, it is expected to boost overall consumer demand, especially in rural areas, which in turn will give impetus to further investor sentiment and aid the economic growth of the country. Food inflation is also expected to come under control, if the water availability conditions improve. On this note, we are bringing out this periodic review to track the progress of monsoon so far, and the corresponding impact on crop cultivation and crop prices. August June 28, 24, Economics Progress of Monsoon so far The following table gives the rainfall received in India for recent weeks in 2016, in all regions, which are divided into 36 meteorological zones by the IMD. Table 1: Rainfall recorded (category wise) June 1-25 June 1-24 June 1-22 (2014) (2015) (2016) Excess Normal Deficient Scanty No rain All zones Note: Excess rainfall: 20% or more, Normal: +19% to -19%, Deficient -20%to -59%, Scanty:-60% to -99%, No rain: -100% Source: Indian Meteorological Department Overall it can be seen that number of regions receiving normal to excess rainfall has been lower than last year. Additionally, area under deficient rainfall has gone up considerably in the recent period. However, the situation is better than it was in Cumulative rainfall has been 85.5 mm which is lower by 18% than the normal of mm. Sowing of crops Kharif crops are cultivated at the onset of the monsoon and harvested towards the end onwards. The south-west monsoon is very important for kharif crop season, as most of the farmers even today lack access to irrigation facilities and are dependent solely on monsoons. India generally receives 80% of its annual rainfall during the period of June-October. 1

2 Table 2: Kharif crop sowing: Area covered (As on 17 th June) Area Sown (lakh hectares) Crop Rice Pulses Coarse Cereals Oilseeds Sugarcane Jute & Mesta Cotton Total Source: Ministry of Agriculture The area sowed until now for Kharif crops till 17th June, at lakh hectares, is lower by 10% compared with lakh hectares covered at this time last year. The south west monsoons are to expected pick up soon and hence there are hopes that the picture will improve with time. Minimum Support Price The Minimum Support Prices (MSPs) for major Kharif Crops of seasons are given in table below: Table 3: Minimum Support Prices for select Kharif crops -comparison of last 2 years Commodity MSP for Season (Prices in Rs/Quintal) MSP Recommended for Season % Change Paddy(Common) Jowar (Hybrid) Bajra Maize Ragi Tur (Arhar) Moong Urad Groundnut-in-shell Soybean(both yellow and black) Cotton(Long staple) Note: The above prices would be effective from 1 st October, 2016 Source: Ministry of Agriculture The Minimum Support Price (MSP) is the minimum price offered to the farmer for procurement in case market prices fall to lower levels. Procurement however takes place mostly in rice and wheat only. The government uses MSP to provide incentives for production of a specific food crop which is generally short in supply or provides some benefits in terms of sustainable utilization of resources like land and water. MSPs are announced at the beginning of the sowing season, providing cues for the farmers in their decision to choose the crop to be cultivated 2

3 that year. MSP is computed on the basis of the recommendations made by the Commission for Agricultural Costs and Prices (CACP). This year, the MSP has been increased for all Kharif crops. Pulses and oilseeds have been offered the highest increase in percentage terms given that there were shortfalls last year. Certain crops have also been approved for bonuses as well. This has been done keeping in mind the demand-supply gap of certain crops, especially pulses and oil seeds. India is the largest consumer, producer and importer of pulses in the world. The large demandsupply gap for pulses was mainly due to water shortages in the last 2 years which has tended to exert upward pressure on inflation. The incentive to boost cultivation of leguminous pulses and oilseeds is also seen to bring additional environmental benefits as these crops consume less quantity of water and also aid nitrogen fixation in soil. Other pro farmers measures undertaken by the Government recently: Launch of New Crop Insurance Scheme Pradhan Mantri Fasal Bima Yojana for benefits of farmers, with low premium rates and launch of Crop Insurance portal and mobile app Crop Insurance Launch of Schemes for development of a pan India electronic trading platform under the National Agriculture Market (NAM) scheme, which aims at integrating 585 regulated markets with the common e- market platform. Issuance of soil health card to farmers, which provide information on fertility status of soil and soil test base advisory on use of fertilizers. Implementation of Pradhan Mantri Krishi Sinchai Yojana for extending coverage of irrigation Focus on improvement of production of certain crops under National Food Security Mission (NFSM) Production of Crops It can be seen from the following table that production of most crops was lower in several categories of commodities in FY16 as against FY14. Overall the production of total food grains has also fallen. This corresponds to the period of less than normal rainfall seen in India, which led to water shortage and fall in cultivation of crops. 3

4 Table 4: Production of Crops for Foodgrains ( mn tonnes) 3 rd Adv. Est. Final 3 rd Adv. Est. Target Rice Wheat Jowar Bajra Maize Ragi Barley Cereals Tur Gram Urad Moong Total Pulses Total Foodgrains Oilseeds & other commercial crops (lakh tonnes) 3 rd Adv. Est. Final 3 rd Adv. Est Target Groundnut Mustard Soybean Total Nine oilseeds Cotton* Jute** Sugarcane *Lakh bales of 170 kgs each **Lakh bales of 180 kgs each Source: Agricultural Statistics Department, Directorate of Economics & Statistics WPI inflation WPI inflation for cereals, rice, wheat, pulses and oil seeds has gone up significantly. Moreover, the prices of manufactured products like sugar and edible oils, which have agri products as their main input, have also reported a sharp rise. This can be seen in the following table: 4

5 Table 5: WPI Inflation for certain select crops and related commodities WPI Inflation (y-o-y) Commodities/ Mar-15 Mar-16 Groups All Commodities Primary Articles Cereals Rice Wheat Pulses Oil Seeds Sugar Edible Oils Source: Ministry of Commerce and Industry Conclusion The successive drought like conditions in the last 2 years has had a significant impact in terms of reduction of major crops production and consistent increase in inflation of agricultural and agro related commodities. This in turn also pressurized imports for certain products like pulses. In the latter part of this year, the situation is expected to improve with expectations of more than above normal monsoons. Currently monsoon rains have begun in certain parts of India and as per IMD, have covered nearly half of the country, increasing the speed of cultivation of crops like paddy rice, soybeans, cotton and pulses. The sowing of crops seen is to pick up further as the major portion of monsoon season still to run the course. The timely outreach of rains will chalk out the course for cultivation of crops and their availability in the market in the coming months. This will also determine the course of the current demand-supply mismatch in the market (with onset of monsoons, consumer demand is also to increase) and might provide relief in terms of inflation of the concerned crops and related products. Thus, the progress of monsoons this year and the timing of crop sowing need to be monitored periodically. 5

6 Contact: Madan Sabnavis Anushka Sawarkar Chief Economist Associate Economist Disclaimer This report is prepared by the Economics Division of Credit Analysis &Research Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this report. 6