Battle-ready

IMD, in collaboration with an all India co-ordinated research project on agro meteorology, located in Hyderabad, is issuing agro advisories twice a week on Tuesdays and Thursdays through a network of district agro meteorological units across the country. Indian Institute of Wheat & Barley Research provides the necessary crop-specific advisories to the farmers through mobile apps.

The Central government has issued instructions that all extension agencies from Central and state governments, along with ICAR/SAUs, should visit the farmers’ fields regularly and provide timely advisories to the farmers, wherever heat stress conditions occur.

Apart from the threat of heat stress, it is the possibility of El Nino that emanates from the warmer waters of the Pacific Ocean and influences seasonal climatic patterns, which is keeping our agricultural scientists awake. The fear is that El Nino will result in lower rainfall in the coming monsoon season. This may typically lead to drought.

In the past, El Nino has resulted in drought or deficient southwest monsoon in the country. A deficient monsoon could affect the production of kharif crops. Paddy, a water guzzler, groundnut and pulses are the crops that are most likely to be affected in the case of a severe El Nino. Sugarcane and cotton output can also be hit.

There is another aspect of the situation that the government will have to be careful about. After lagging the urban regions in recovery post the pandemic, the rural economy has been picking up. High-frequency indicators available for the rural economy suggest stabilising conditions and improving incomes. Tractor sales have risen 24.4 per cent year-on-year in January, while rural unemployment fell to 6.5 per cent, according to data compiled by Nirmal Bang Institutional Equities. Two-wheeler sales grew 5 per cent year on year but are still lagging pre-pandemic levels. Rural wages, the brokerage said, picked up to rise 7.8 per cent in November 2022, after having remained subdued for most of the past year.

Headwinds

But now, the rural pick-up could face headwinds from the twin threat of heat waves and El Nino. According to the 28 February update from IMD, during the upcoming hot weather season between March and May, above normal maximum temperatures are likely over most parts of northeast, east and central India and some parts of northwest India. 

But how severe an El Nino is going to be, what is its impact, which month is going to hit and what will its impact on prices be is difficult to predict. "It's a risk we need to monitor," says Sonal Varma, chief India economist at Nomura. "We've had periods in the past of El Nino with not-so-bad rains or bad rains with less impact on production or production hit but limited price impact. So, I think we are hopping over so many bridges to come to the view that El Nino is equal to high inflation and bad production and, therefore, bad for rural demand. Right now, to my mind, it's a risk, but not a clear-cut negative." 

The moderation in inflation, from a real income perspective, is becoming a positive for rural India, Varma adds. The one segment that is still doing well is infrastructure and investments; construction activity does tend to be better for rural income, she feels. "The glass is more half full at this stage."

Premature to worry

M. Rajeevan, former secretary, Union ministry of earth sciences, says that more reliable forecast about the El Nino will be available by May/June, which will give accurate information on the intensity and spatial structure that will determine the impact on the Indian monsoon. The IMD will issue its first official assessment of the 2023 monsoon outlook in mid-April and an update in late May. The IMD now uses coupled climate models that explicitly take into account El Nino development to predict the outlook for the Indian monsoon rainfall.

“We should also take into account how other global forces from the Indian Ocean and Atlantic behave, and whether they are unfavourable in nature,” Rajeevan suggests. “Climate models predict the development of a positive dipole in the Indian Ocean later this year, which should favour a normal monsoon.” He expects an El Nino event by August-September, but how severe it will be remains to be seen.

El Nino explained

To understand the El Nino phenomenon, one needs to remember that the Pacific Ocean (from where it emanates) holds 97 per cent of the total water on the planet; accounts for 78 per cent of global ocean precipitation and is the source of 86 per cent of global evaporation.

Being the largest single body of water, the Pacific has an outsized influence on weather and climate across the globe. In normal conditions, trade winds here blow west along the equator, pushing warm water from South America towards Asia. To replace that warm water, cold water rises from the depths. El Niño and La Niña are opposing climate patterns that break these normal conditions and collectively represent the El Niño-Southern Oscillation (ENSO) cycle.

During El Niño, trade winds weaken and warm water gets pushed back East of the Pacific, towards the West coast of the Americas. Warm oceans promote evaporation and therefore lower pressure, causing air and moisture to ascend. The moisture condenses in the heights to form clouds, storms, heavy rain and floods. The exact reverse happens at the other end (Asia) where waters become cooler. Air descends here and builds pressure, setting up clear skies and below-normal rainfall.

This seasonal seesawing of pressure/temperature in the ENSO cycle can typically last nine to 12 months; even for years as evidenced in a three-year-long and ongoing (though fading) La Nina. On average, these episodes occur every two to seven years but don’t keep to a regular schedule. The coming summer season, according to scientists, may see the advent of El Nino. 

Are we prepared?

On paper, India is usually prepared to face such eventualities. It is more so now as it has a Crop Weather Watch Group that monitors everything from the rainfall to crop sowing to water storage levels in major reservoirs. In the past, the government had asked growers to shift to coarse cereals from paddy due to deficient rainfall.

To shield the economy, the government can ensure the availability of ample food stocks in its granaries. It is expected to procure adequate wheat from 1 April once wheat begins arriving in the markets after harvest.

The other measures the Centre could resort to are export curbs to ensure adequate domestic supplies. However, El Nino usually affects oil palm production. But estimates of a record high mustard production and a good stock of soyabean with farmers may help tide over any such situation. 

India has adequate stocks, thanks to the bumper crop of 2022-23. As per second advance estimates for 2022-23, total food grain production in the country is estimated at record 323.55 million tonnes (mt), which is higher by 7.94 mt, when compared to 2021-22. The total production of rice during 2022-23 is estimated at record 130.84 mt –  higher by 1.37 mt, when compared to previous year. The production of wheat is estimated at 112.18 mt, which is higher by 4.44 mt than the previous year’s production.

In the end, predicting El Nino and taking measures to prepare for it can help mitigate the impact on the population and ensure food security in times of drought will matter, Rajeevan feels. As of now, however, one cannot make presumptions with certainty about the characteristics of the event, such as its intensity and spatial structure.

Yet, all may not be hunky dory. Last year, due to a sudden rise in temperature in March 2022, wheat production fell and the government could only procure 18.8 mt, whereas the requirement was 19.2 mt.  The central pool stock on 1 April this year may be only about 9.5 mt, while the buffer norm is 7.4 mt.  However, at least 25 mt must be procured in the rabi marketing season (RMS) of 2023-24 to meet the requirement of the public distribution system and welfare schemes.

To that effect, the government has taken aggressive steps to reduce the market price. It has increased the sale under Open Market Sale Scheme (OMSS) from 3 to 5 mt. In Madhya Pradesh, a major wheat growing state now, where wheat arrives in mandis (local markets) before Punjab and Haryana, the prices are already down to Rs2,000 from Rs2,200 per quintal for mill-quality wheat due to the launch of OMSS.

Under OMSS, the government allows the Food Corporation of India (FCI) to sell wheat to bulk users. The reserve price is fixed by the government. In the tenders floated by the FCI, the bidders cannot quote less than the reserve price. OMSS has been one of the major instruments for reducing the market price of wheat, resulting in the wheat farmers being the losers.

But this involves a political cost and wheat farmers are not happy at this turn of events. The wheat prices at the time of peak arrival in markets (April and May) fall below the minimum support price (MSP). The government ends up procuring much more than its requirement, evident from the fact that procurement in 2019-20 was 34.13 million tonnes but, in 2020-21, it rose to 40.7 mt and touched an all-time high of 43.34 mt in 2021-22. But farmers did not get the price they were hoping for. 

The government’s decision to sell wheat under OMSS was meant to more or less douse the inflationary fires, but it came rather late. It was only on 26 January this year that the sale of 3 mt of wheat under OMSS was announced. The government decided to sell another 2 mt of wheat on 21 February under OMSS. The reserve price for bulk users came down from Rs2,600 per quintal to Rs2,150 per quintal.

What lies ahead?

If the pattern of rising temperatures continues in March also, there is a fear that last year’s story of lower yield will repeat. This is not good news for the farmers as well as the government. Add to that the possibility of lower rainfall due to El Nino.

Despite all this, the prices in Punjab’s open market are likely to fall below the MSP of Rs2,125 per quintal as most of the wheat crop arrives in a short period of just three weeks. Punjab procures on an average about 13 mt of wheat every year. Last year, due to lower yield, procurement fell to 9.6 mt. Private trade does not buy its requirement from Punjab due to high market fees and rural development cess of 3 per cent each and Arhatiyas’ commission of 2.5 per cent. This adds up to 8.5 per cent.

In Haryana, the procurement was 9.3 mt in 2019-20, 7.4 mt in 2020-21 and 8.5 mt in 2021-22. But in 2022-23, it fell to 4.2 mt. Haryana is also not a preferred state for the purchase of wheat by private trade as the market fee and other charges add up to 6.5 per cent.

MP key to success

In the last few years, Madhya Pradesh has emerged as an important wheat-procuring state. The procurement increased from 6.7 mt in 2019-20 to about 13 million tonnes in the next two years. But in 2022-23, it fell to only 4.6 million tonnes. The market fee and other charges are only 3.57 per cent and the private trade prefers to buy from Madhya Pradesh as the freight to southern and western states is also lower. The success of wheat procurement for the central pool will depend on what happens in Madhya Pradesh.

Uttar Pradesh is the largest wheat-producing state, but due to its large population, it is also a big consumer. It has been a preferred destination for purchase by the private trade as the market fee and other charges are 3.87 per cent only. However, the procurement is not stable and it fell from 5.6 mt in 2021-22 to 0.33 mt in 2022-23.  

The biggest weapon to discourage private trade from stocking too much wheat in the open market is the threat of imposition of the Essential Commodities Act 1955. It was one of the three farm laws amended by the government through an ordinance in 2020. The EC Act was not to be used unless the retail prices rose by 50 per cent over the average of the last three years.

However, a ban on the export of wheat and wheat products was imposed in May 2022 and there is little possibility of a relaxation. So, one can expect that large corporates will not be enthusiastic about buying and storing wheat from the open market. This will again hurt the interests of farmers. 

According to official sources, the government is likely to target procurement of up to 30 mt of wheat and use some of the stock for additional allocations in the run-up to the Lok Sabha elections in 2024. The Modi government began the practice of using additional allocations to alleviate the impact of the loss of income during the Covid-19 pandemic under the Pradhan Mantri Garib Kalyan Yojana. This had helped the Bharatiya Janata Party to tackle anti-incumbency in the Uttar Pradesh assembly election to some extent.  The wheat mop-up may come to the rescue of the consumer but not the farmer.