El Niño's impact could be cushioned by rice reserves
What's the story
India is facing its weakest monsoon in nearly two decades, with rainfall 15% below normal. The situation is worsened by a strengthening El Niño phenomenon, which could lead to crop losses. However, unlike a decade ago, the country has a huge buffer of rice reserves to help keep rice supplies stable even if harvests are poor.
Production decline
Record rice reserves ahead of October 1
India's rice production is expected to drop by 10 million tons this year, bringing it down to around 144 million tons.
This would be a 6.5% decrease from last year's record output of 154 million tons. The decline is the largest since the El Niño-linked drought of 2009-10.
Despite this, state rice reserves stood at a record 59.6 million tons as of September 1, far exceeding the government's target of 10.3 million tons for October 1.
Rainfall deficit
Uneven monsoon and its effects
This year's monsoon has not only been weak but also unevenly distributed, with prolonged dry spells and intense rainfall in some regions.
The India Meteorological Department (IMD) had predicted below-normal rainfall for September due to the strengthening El Niño.
June's rainfall was 35% below normal, delaying the planting of summer crops such as rice, cotton, soybean, and corn.
This has created a double risk of damaging existing crops and reducing soil moisture for future plantings.
Price surge
Impact on market and exports
The rainfall deficit has already impacted the market, with local rice prices rising on expectations of a smaller crop.
Indian export prices have also hit their highest level in over a year.
However, India's record stockpiles could enable New Delhi to maintain exports without imposing new restrictions despite the lower harvest.
This stockpile could bridge two agricultural years by filling gaps left by smaller new crops or tighter market availability for exporters.
Inflation concerns
Broader agricultural concerns and food inflation
The monsoon's impact on rice is just one part of the larger agricultural picture. A prolonged rainfall deficit could affect other crops such as sugarcane, soybean, and pulses.
Food inflation has already risen, with India's headline retail inflation hitting 4.82% in August due to higher food prices.
Chief Economic Adviser V Anantha Nageswaran said that while food inflation may not persist toward the end of the year, how much rainfall deficit translates into crop loss will determine future prices.