Opinion Ashok Gulati, Purvi Thangaraj write: Rainfall high — but so are vegetable prices

This is somewhat worrying. On top of this, the World Meteorological Organisation (WMO)’s report of July 4 has already declared 2023 to be an El Nino year with 90 per cent probability. July 3 and 4 have been reported to be hottest days on Earth. Fast warming of the Pacific Ocean during July to September can play spoilsport with the Indian monsoon. One only hopes that the positive Indian Ocean Dipole (IOD) can neutralise the negative impact of El Nino Southern Oscillation (ENSO) and India can escape a drought.

But what is the relation between El Nino and Indian droughts? How much damage can they do to Indian agricultural production, and thus food prices? Indian rainfall data from 1950 to 2022 shows that there have been 15 drought years when weighted all India rainfall is deficient by at least 10 per cent of its LPA. Of these 15 drought years, 11 coincided with El Nino occurrence. This suggests a strong correlation between El Nino and Indian droughts. But all El Nino years have not necessarily resulted in droughts. So far, IMD has maintained that despite El Nino, India will have a normal rainfall. We wish IMD’s weather modelling is right. But as old wisdom suggests, hope for the best, but be prepared for the worst. We have looked at a scenario of a probable drought or below normal rainfall and try to reckon the likely shortfall in foodgrain production. We suggest the pre-emptive policy measures that can be taken at this stage.

It may be noted that of the 15 droughts since 1950, three droughts years — 1965, 1979, and 2002 — have been the most damaging in terms of percentage drop in foodgrain production (19 per cent, 16.8 per cent, and 17.9 per cent, respectively) over the previous years. But the 2002 drought saw the maximum fall in absolute amount of foodgrain production by as much as 38 million tonnes (MT). If India had gone to the world markets to import 38 MT of foodgrains, one can imagine how global prices would have reacted. However, the subsequent droughts have been much milder.

For example, the 2014 drought led to a drop of only 13 MT of foodgrain production, which was just 4.9 per cent over the previous year. The 2015 drought led to a drop of just 0.5MT of foodgrain production (0.2 percent) over 2014 production, which was already a drought year. The extent of damage obviously depends on the intensity of drought, which in turn could be influenced by the intensity and timing of El Nino and whether the IOD is positive or negative at that time of the year. Over a longer period, irrigation cover for foodgrains has also been increasing, from 18 per cent in 1951 to 53 per cent in 2015, which also provides a cushion against droughts.

On the policy front, the government has been pro-active in taming food prices. Wheat exports have been banned and now stocking limits have also been imposed on traders and processors of wheat. Rice exports have attracted export duty of 20 percent on common rice. Most of pulses have also been under export controls/restrictions and stocking limits. Lately, the government has also been undertaking open market operations in wheat and rice with a view to bring down cereal inflation, which is still hovering in double digits. Aggressive open market sales of wheat by the government to the tune of about 3.4 MT just before wheat procurement season began in April helped bring down wheat wholesale prices substantially. That, in turn, enabled the government to procure 26MT of wheat.

However, some of the vegetable prices are getting totally out of control — tomatoes, ginger, chillies for example. It seems that government’s “Operation Green”, which started off with tomatoes, onions and potatoes (TOP) and extended to other vegetables, has not delivered in taming prices of TOP. It needs a serious re-visit, and our research in this area suggests that it needs to be taken out of the ambit of the Ministry of Food Processing and entrusted with an independent body specialising in vegetable value chains with a clear mandate to stabilise the TOP prices and production, and increase the share of producers in the consumer’s rupee, somewhat akin to National Dairy Development Board (NDDB) in the case of milk.

In case of cereals and pulses, we suggest market operations for rice can be increased till the new crop comes to market. There are ample stocks of rice with FCI, way above the buffer stock norms. But for wheat, the government needs to hold on to its reserves and use them judiciously during November to March, when demand will be peaking. Import duties on wheat need to be reduced from 40 percent to say 10 per cent to augment supplies. Trade estimates of wheat production are much lower than the government estimate of 112 MT. In case of pulses, especially yellow pea, the import duty needs to be reduced to just 10 percent. We hope these measures can help contain food grain prices.

Gulati is Distinguished Professor and Thangaraj a Research Associate at ICRIER. Views are personal