Despite an overall improvement in the performance of monsoon compared to last year, the agriculture sector continues to remain at risk due to regional disparities in rainfall, according to a report by CareEdge Ratings. Major agrarian regions, particularly in Northern India and the Gangetic plains, continue to experience significant deficits in rainfall.
The report mentioned that monitoring food prices is crucial, especially as the base effect is expected to turn adverse ahead of the early festive season this year. Despite cereals leading the Kharif sowing this season, the delayed sowing of pulses compared to years with normal monsoons, coupled with the narrowing deflation in edible oil prices, poses a risk to food inflation.
Following a sluggish onset in June, the southwest monsoon gained significant momentum, achieving surplus levels in July (2 per cent above normal) and further strengthening this surplus throughout August (6.6 per cent above normal).
Although the monsoon in this season has been above normal at the national level, significant regional variations persist. Approximately 42 per cent of the 36 meteorological sub-divisions experienced cumulative rainfall deficits, including key agrarian regions, which is a cause for concern.
While central and southern India saw substantial surplus rainfall, it was notably muted in Eastern India and the major agrarian states of Northern India. Key states such as Punjab, Bihar, Haryana, Uttar Pradesh, Gangetic West Bengal, and Orissa experienced double-digit deficits in rainfall.
According to the report, “This shortfall could negatively impact overall agricultural productivity and output, especially given that approximately 97 per cent of kharif sowing has already been completed, leaving limited scope for recovery.”
"The outlook for the agriculture sector has improved with cumulative rainfall so far above normal. However, distribution of rainfall remains a challenge with some key agrarian region experiencing deficit. Sowing of pulses and some oilseeds has lagged so far when compared to years with normal monsoon," said Rajani Sinha, Chief Economist, CareEgde Ratings.
Food Inflation Needs Close Monitoring
The Kharif sowing of food grains has increased by 4.6 per cent compared to the same period last year (as of 23 August) and is 2.9 per cent higher than the average sowing of 2021 and 2022. Sowing of all major categories of foodgrains led by cereals (4.4 per cent) and pulses (5.7 per cent) have shown improvement compared to last year.
Additionally, to get a more accurate picture, it is important to compare the growth in sowing to the average of 2021 and 2022, as the growth figures of certain crops for the last year can be inflated due to a low base effect.
“It should be noted that the sowing of pulses and oilseeds was adversely affected by last year’s El Nino-related disruptions. Compared to the average sowing levels of 2021 and 2022, the sowing of cereals and sugarcane has shown healthy growth,” it added.
However, the sowing of pulses and oilseeds remains below par compared to the average sowing of 2021-22. Additionally, it is important to note that India’s import dependency on pulses and edible oil for domestic consumption currently stands at around 9% and 55 per cent, respectively.
Talking about the origin and risk to food inflation, the report stated that the sowing of pulses remains 6.5 per cent below the average levels of 2021 and 2022, which is concerning given the persistently high inflation in this category. Inflation for pulses has remained in double digits for the past 14 months, averaging 16.7 per cent.
The sowing of oilseeds has slightly lagged the average levels of 2021 and 2022. Given large import dependency and lacklustre sowing of oilseed, the risk to food inflation from edible oil needs closer monitoring especially when global prices of oil seeds have shown a recent uptick due to global factors.
The potential output of palm oil in Indonesia, rising demand for soy oil form the biofuel sector and deteriorating crop prospects of a few oil-producing countries have pushed global edible oil prices out of deflation in the recent months. Higher inflation in the global edible oil prices may spill over to the domestic consumption basket with a lag.
