Can A Good Monsoon Really Help Lower Food Prices?   Jun 22, 2015

Impact

The Indian Meteorological Department's (IMD's) forecast for southwest monsoon brought out a possibility of a deficient rainfall this year. It has brought down its long-range forecast to 88% of Long Period Average (LPA) from 93% LPA in a forecast released in April 2015. Such an estimate spells bad news for the agrarian sector which has encountered the atrocities of unseasonal summer rains and hailstorms.

The southwest monsoon thus far in June seems quite satisfactory with some regions witnessing even above-normal rainfall. So far we are off to a good start for southwest monsoon, but most parts of central and northwest India is yet to witness the onset of rainfall. According to the IMD between June 21 and 25, rainfall will increase over many parts of central and adjoining eastern and northwestern parts of the country. Thereafter, between June 26 and 30, rainfall is expected to increase over the Gangetic plains and northwest India.

At present, unfortunately, food prices are continuing to increase especially that of pulses and vegetables. Due to the unseasonal rainfall and the heatwave earlier this year, the effect of damaged crops can still be felt in the form of escalated prices. Nearly 94 lakh hectors of sowing area has been affected by unseasonal rainfall. And as per the estimates of Ministry of Agriculture, the food grain production is likely to be 5% lower when compared to that of previous year, where the production of pulses and oilseeds is likely to be worse this season. Even chicken prices have soared to record high this year.

It is expected that food prices will stay higher this monsoon season as the new crops and the benefits of a good monsoon will only be felt in October. Importing pulses has also become costlier as many countries produce comparatively fewer pulses. Importing vegetables and chicken is a problem as well, since the shelf life of these products is very low.

Even though wholesale and consumer price indices are trending lower, inflation is still high for many household products such dairy products and pulses. The prices of pulses has spiked with the price of Arhar (tur) rising upto 47% this year according to the ministry of consumer affairs.

While the impact of an encouraging southwest monsoon in some parts of India might not be felt immediately, a bad monsoon would worsen the situation. A deficient monsoon would be ominous for the state of Maharashtra as well as Madhya Pradesh, Andhra Pradesh and Telegana. A bad monsoon would entail a rally in food prices which would spell trouble for the RBI as it is trying to keep inflation in check. Not to mention the effect on the common man who is looking out for "Acche Din". However wholesalers could benefit the most from poor monsoons as food prices rise.

A detrimental impact on agriculture would consequentially also pull down GDP growth rate. So, let's hope the rain God showers on India adequately which can make food, which is one of the primary needs, affordable for the common man.

Add Comments