05 Apr 2016 22:13 IST

Goodbye to El Nino

El Nino has wreaked havoc on the farm sector this time. But it may do some good on its way out

With private forecasters predicting that the ongoing El Nino weather aberration may return to neutral conditions by the middle of 2016, Indian farmers and policymakers may have reason to heave gusty sighs of relief. For this could pave the way for the South-West monsoon, that life-giver to Indian agriculture, to return to business-as-usual in the upcoming season.

Hitting output

The unusually strong El Nino of 2015 has dealt a severe blow to India’s agricultural output for the last two years. Acreage under critical foodgrain and pulses crops has shrunk, crop yields have taken a beating and farmers have been saddled with crop losses. This has caused the farm GDP growth rate to tumble from a robust 4.2 per cent in 2013-14, to a negative 0.2 per cent in 2014-15 to an anaemic 1.1 per cent (estimated) for 2015-16.

Before the present episode of El Nino flexed its muscles, weather watchers tended to discount the impact of this global weather phenomenon on Indian agriculture. And they had statistics to support them.

El Nino, the weather aberration which causes an unusual warming of ocean temperatures in the Central and Eastern Pacific, usually triggers excessive rains in South America and dry spells in much of Asia. While global El Nino episodes make their appearance every two to seven years, not all of them have precipitated droughts in India. Only 60 per cent of the droughts in India in the last 130 years have coincided with an El Nino episode.

This is because both the timing and the intensity of the warming experienced during El Nino decides its impact on the Indian monsoon and thus on agri output. The typical El Nino phase in the last 100-odd years has lasted 9-12 months, developing during April-June and reaching its peak strength during December to February. This timing usually ensures that the warmest phase of this weather anomaly is already on the wane by the time the Indian monsoon prepares for its onset in May/June.

Bad timing

But the current episode of El Nino, which began unfolding way back in February 2015, has proved more stubborn than most. It has already lasted 12 months and, going by current trends in ocean temperatures, global climate models predict that it may begin to wind down only from May 2016. Both the above-average temperatures recorded during this El Nino and its unusually long duration, make this one of the strongest ever manifestations of this weather anomaly, since 1997-98.

In India, a single year of sub-normal monsoon has traditionally not had much of an impact on agricultural output, but this unusually strong dose of El Nino has triggered two successive years of poor rainfall. While 2014 saw the South West monsoon fall short of normal by 12 per cent, 2015 has seen a 14 per cent deficit in rainfall, relative to the long-period average. This has had a significant adverse impact on both the yields and output of critical food crops.

While final estimates of agricultural output for 2015-16 are not yet out, statistics from the Agriculture Ministry show that the poor monsoon took a severe toll on the output of foodgrains (down 4.6 per cent), pulses (down 10.8 per cent), oilseeds (down 19 per cent) and even cash crops like cotton (down 3.3 per cent) in 2014-15.

The price effect

However, even lower agricultural output may not have resulted in a rural crisis of the current magnitude, if realisations had held up. After all, in previous drought years such as 2008-09, buoyant global prices of agri-commodities helped shield farm incomes from the impact of shrinking output. Given that demand for foodgrains, pulses and horticulture crops in India is fairly inelastic due to burgeoning population, a shortfall in output of any food crop usually triggers a flare-up in agri prices.

But this time around, as luck would have it, such inflationary pressures have been quelled by the meltdown in global agri-commodity prices. The explanation for this is simple. The years from 2005 to 2011 marked boom-time for the entire global commodity complex, thanks to the easy money policies of global central banks.

For agri-commodities, this ‘super-cycle’ was further fuelled by fears that dwindling arable land and water resources would lead to persisting shortages in food crops. The demand for bio-fuel also added to this rally, by expanding demand for crops such as maize, palm and sugarcane. However, with never-before crop prices prompting farmers around the world to sharply increase their plantings, the global output of soyabean, corn and food grains witnessed a sharp expansion post-2011.

Double whammy

With the markets saddled with large surplus stocks, agri-commodity prices joined their industrial cousins in a rapid meltdown. An IMF gauge of global food product prices now trades 25 per cent below its 2011 levels, but key food crops such as wheat, maize and soyabean have crashed 40 per cent or more, just in the last three years.

Now, India imports sizeable quantities of food products such as palm and soyabean oil, exports soyabean meal, corn and rice, and derives a significant portion of its export realisations from cash crops such as cotton, tea and coffee. These global linkages have ensured that domestic agri-commodity prices have been unable to spike up, in response to the crop losses caused by El Nino.

It is this unusual situation which has exposed Indian framers to the double-whammy of falling prices, on top of debilitating crop losses.

But the good news is that this El Nino may throw a lifeline to the farm economy, even as it fades out this year. With extended dry spells over the last year beginning to impact the output of critical crops such as wheat in Australia and India, sugarcane in Brazil and Thailand and palm oil in Malaysia, global forecasters now believe that some of these agri commodity markets may move from a multi-year surplus into a deficit in the year ahead. The global agri commodity markets have already responded to this news by pegging up prices of sugar, palm oil, wheat and similar commodities.

For Indian farmers, a sustained recovery in global agri prices could potentially signal a double bonanza. If the El Nino does fade away quietly, just before the South West monsoon of 2016 and agri prices begin to pick up, their incomes should see significant improvement.

But then, given how the El Nino risks to Indian farmers were underplayed before this episode, farmers would be well advised not to bet their shirts on this expectation.

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