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July 2012
CRISIL Insight
CRISIL Insight
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Key Messages
Till July 18, 2012, the overall monsoon has been 21.9 per cent below the Long Period Average (LPA). The rainfall pattern so far this year is similar to that seen in 2009 which was an all-India drought year. This has raised the specter of drought in the country this year.
CRISIL measures the impact of deficient rain on agriculture output through Deficient Rainfall Impact Parameter (DRIP) that was developed in 2002. DRIP is based on the premise that both the availability of irrigation and the level of precipitation affect crop production.
DRIP scores based on data till July 18 show that agricultural production in Gujarat, Rajasthan, Maharashtra, Karnataka, and Madhya Pradesh is likely to be hit the most by poor rainfall. Crop-wise DRIP scores show that coarse cereals (jowar, bajra) oilseeds (groundnut, soyabean) and pulses (tur) have been impacted the most by deficient rains. For most of these crops, the DRIP score is higher than that in 2009.
Rajasthan and Madhya Pradesh not only have high incidence of rural poverty but also high dependence on agriculture. Providing relief to these states will translate into a higher burden on the exchequer. Growth: Kharif production will be hit as sowing of quite a few crops has been negatively impacted by deficient rainfall. At the all-India level, area sown till July 13 was around 19 per cent lower than the area sown during the corresponding period last year. In addition the yields of crops that have been planted will suffer. This will shave off some part of GDP. If monsoons continue to remain below normal in August, GDP growth could fall below 6.0 per cent from our current expectation of 6.5 per cent.
Inflation: Food inflation, which is already high, will face further pressure due to poor rainfall. The prices of pulses and coarse cereals, which are rain-fed crops and for which no buffer stocks exist, could flare up as a result. In addition, prices of oil seeds are expected to rise further because of lack of adequate sowing due to lower acreage. This will push up the WPI based inflation beyond the 7.0 per cent that we have forecast in our base case scenario.
CRISIL Insight
Contents
Key Messages Progress of Monsoons When is rainfall deficiency classified as drought? Measuring the impact of deficient rainfall Rainfall deficiency and vulnerability of states Impact on sowing Annexure1: Detailed state wise analysis Gujarat Rajasthan Maharashtra Karnataka Madhya Pradesh
Page
1 3 4 5 7 8 9 9 9 10 11 11 12
-3.8
-4.0
-29.5 -30.4
Normal
Deficient
Scanty
-68.8 -68.9 -82.3 Madhya Pradesh Maharashtra Uttar Pradesh Haryana All India
Orissa
Andhra Pradesh
Rajasthan
Tamil Nadu
West Bengal
Agricultural production depends not only on the quantum of rainfall but also on its distribution across regions and over time. In terms of magnitude and area affected, the rainfall pattern till July 18, 2012, is quite distorted.
Karanataka
Himachal
Gujarat
Kerala
Bihar
Punjab
Assam
J&K
CRISIL Insight
June rain, though relevant from the sowing perspective, is not a critical determinant of agricultural performance. It has a weak correlation with agricultural production. Empirical evidence shows that whenever poor rainfall in June was compensated by good rains in July and August, agricultural performance was normal. In 2005-06 and 2006-07, heavy rains in July and August compensated for the deficiency of rains in June and raised the agricultural growth to 4.0 per cent and 5.8 per cent respectively. So, the crop damage will be limited in regions where the rainfall situation improves in July/August 2012. But in regions where rainfall continues to remain scanty / deficient, the damage that has already been done to kharif crops cannot be sufficiently mitigated even if monsoons bounce back. However, a bounce-back of the monsoon in August and September will improve the ground water situation and help the next seasons (rabi) crop.
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Meteorological drought: When actual rainfall over an area is significantly less than the climatological mean. Meteorological drought at the regional/sub-division level is classified into two categories
Moderate drought: When rainfall deficiency is between 26-50 per cent Severe drought: When rainfall deficiency exceeds 50 per cent
2. Hydrological drought: When there is marked depletion of surface water, causing very low stream flow and drying of lakes, reservoirs and rivers. 3. Agricultural drought: When inadequate soil moisture produces acute crop stress and affects productivity.
Meteorological drought does not always lead to hydrological or agricultural drought. Vulnerability of a region, timeliness of rainfall and the magnitude of its deficiency play a critical role in determining whether meteorological drought will turn into an agricultural drought
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-18
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For the country as a whole, a drought year is defined as one in which rainfall deficiency is in excess of 10 per cent of normal and more than 20-40 per cent of the area (either individually or together) is affected by moderate or severe drought conditions. When the spatial coverage of drought is in excess of 40 per cent, it is classified as an all-India severe drought year. The spatial coverage of the rains and its quantum would classify the prevailing situation into a drought year if the situation does not improve in the coming weeks. Going by the official definition, a continuation of status quo in the remaining weeks of this monsoon season will lead to drought/severe drought year in 2012.
CRISIL Insight
Of all these crops, the soyabean crop is particularly vulnerable. Global production of the crop has been hit hard due to low output in some of the biggest producing nations Argentina, Brazil and United States due to unfavourable weather conditions. This will make imports costly. Table 1: CROP wise DRIP Scores
Crop Aggregated DRIP 18-Jul 2007 Bajra Groundnut Tur Jowar Soyabean Cotton Maize Rice Sugarcane Food Grain DRIP Source: IMD data, CRISIL Computations 8.1 10.1 5.4 1.4 0.0 4.7 3.7 2.8 0.8 3.6 For the period from 1st June to 16-Jul 2008 12.4 30.9 29.7 30.7 10.4 24.6 13.0 3.3 0.1 11.4 15-Jul 2009 33.9 31.4 25.9 17.0 27.3 18.8 19.8 10.0 1.9 18 21-Jul 2010 19.7 22.3 15.1 6.7 21.4 10.4 8.6 5.7 0.9 10.8 20-Jul 2011 8.8 24.0 10.3 4.9 1.2 12.5 4.5 3.0 0.0 5.4 18-Jul 2012 37.3 32.3 31.0 26.5 25.0 21.0 19.6 4.9 1.3 16.7
State-wise DRIP scores based on data till July 18 show that Gujarat, Rajasthan, Maharashtra, Karnataka, and Madhya Pradesh have been the worst hit by poor rainfall (Table 2). Moreover, for most of the states, the DRIP score has been close to or higher than 2009 levels, foreboding a drought. The DRIP score for Punjab is low at 1.2 despite highly deficient rainfall as over 95 per cent area is irrigated. Table 2: State wise DRIP Scores
State-wise DRIP 18-Jul 2007 Gujarat Rajasthan Maharashtra Karnataka Madhya Pradesh Uttar Pradesh Haryana Bihar Orissa Tamil Nadu West Bengal Andhra Pradesh Punjab 20.9 0.0 0.0 0.0 0.0 7.7 0.0 11.6 0.0 0.7 0.0 0.0 0.0 For the period from 1st June to 16-Jul 2008 43.7 0.0 38.4 22.1 0.0 0.0 0.0 0.0 0.0 3.2 0.0 14.8 0.0 15-Jul 2009 45.4 20.2 15.0 0.0 30.1 17.8 9.8 26.7 0.0 5.7 19.4 15.7 1.0 21-Jul 2010 42.7 18.7 0.0 6.5 27.9 8.9 0.0 8.2 17.0 0.0 4.4 0.0 0.0 20-Jul 2011 44.2 0.0 4.1 0.0 0.0 0.0 2.6 0.0 9.2 3.4 0.0 6.3 0.0 18-Jul 2012 53.8 30.1 26.0 23.9 21.6 12.2 11.4 11.1 11.0 2.2 2.1 1.7 1.2
The state level impact of deficient rains depends on the vulnerability of the state. States with lower coverage of irrigation, higher dependence on agriculture, and larger proportion of rural poor will take a greater hit. The higher values of DRIP scores in Rajasthan, Maharashtra and Madhya Pradesh imply that they will be relatively worse off in terms of the combined impact of DRIP, dependence on agriculture, and incidence of rural poverty. Rural poor are impacted not only in terms of loss of crops but also on account of reduced income due to drying up of rural employment opportunities. While the loss of crops will hurt subsistence farmers the most, the biggest casualty of shrinking rural employment opportunities will be is the landless labourer. One major factor that offsets the reduction in employment opportunities in rural areas is employment creation through the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS). This implies a higher burden on the exchequer to provide relief to these states. The hit to agriculture at a national level, on the basis of rainfall pattern till July 18, 2012, is almost as bad as it was in 2009. This is likely to adversely impact agricultural GDP growth. The extent of damage will become clear once we have the full rainfall picture by the end of August. The performance of monsoons in the next few weeks will, therefore, be very critical.
CRISIL Insight
Impact on sowing
The distorted monsoon pattern has translated into lower sowing during the kharif season. At the all-India level, area sown till July 13 was around 19 per cent lower than the area sown during the corresponding period last year. Table 4 shows the trend in sowing for major crops. Sowing for all kharif crops has taken a severe hit. The area under rice sowing is down by 19 per cent from its acreage during the corresponding period last year. The sowing of coarse cereals and pulses has also been severely affected, and is down by over than 35 per cent since last year. Coarse cereals such as bajra, ragi etc, which are already witnessing high inflation, are likely to be impacted further. In many states, farmers are substituting water-intensive crops, such as rice, with other crops that require less water. Most of the sowing takes place by the end of July, but late sowing continues till the second week of August. The sowing pattern over the next few days will be important in determining the output during this kharif season. Maharashtra, Karnataka, Rajasthan and Andhra Pradesh together account for 50 per cent of Indias coarse cereals production. As noted before, most of these states are among the worst affected by deficient rainfall this monsoon. This further accentuates the problem of production of these crops this year. Table 4: Progress of Sowing
(Million Hectares) Crop Name Normal 2012-13 (as 2011-12 (as % deviation area(for on 13 July) on 13 July) entire kharif season) Rice Total Coarse Cereal Total Pulses Total Foodgrains Total Oilseeds All Crops 39.1 21.9 11.0 72.0 17.9 105.2 9.7 4.0 2.1 15.7 6.8 35.1 12.0 7.4 3.3 22.7 8.7 43.3 from previous year -19.2 -45.9 -36.4 -30.8 -21.8 -18.9
Gujarat
Table 5: Crop wise DRIP Scores (Gujarat) For the period from 1st June to Gujarat 18-Jul 2007 Rice Jowar Bajra Tur Ground nut Cotton Maize Total 11.7 26.8 24.9 29.3 28.4 13.8 28.9 20.9 16-Jul 2008 24.5 56.0 52.0 61.3 59.5 29.0 60.4 43.7 15-Jul 2009 25.5 58.2 54.1 63.8 61.8 30.1 62.8 45.4 21-Jul 2010 24.0 54.7 50.8 59.9 58.1 28.3 59.0 42.7 20-Jul 2011 24.8 56.6 52.6 62.0 60.1 29.3 61.1 44.2 18-Jul Percent share in All 2012 30.2 68.9 64.1 75.5 73.2 35.7 74.4 53.8 India production 1.5 2.6 12.7 9.8 32.4 33.3 3.2
Saurashtra, Kutch, and Diu meteorological of Gujarat is under severe meteorological drought conditions, according to IMD definition. Low rains have significantly affected sowing of kharif oilseeds across the country. As per the Solvent Extractors Association, for the week ending July 5, 2012, the sowing of kharif oilseeds was 41 per cent lower than that in the same period last year. Some increase may be seen in sowing if rains pick up in the remaining part of July. Gujarat is Indias largest producer of groundnuts. Cotton sowing has also been substantially impacted due to lower prices and deficient rainfall.
Rajasthan
Table 6: Crop wise DRIP Scores (Rajasthan) For the period from 1st June to Rajasthan 18-Jul 2007 Jowar Bajra Soyabean Ground nut Cotton Maize Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16-Jul 2008 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15-Jul 2009 22.8 21.7 21.2 6.6 1.5 22.6 20.2 21-Jul 2010 21.1 20.1 19.6 6.1 1.4 20.9 18.7 20-Jul 2011 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18-Jul Percent share in All India production 2012 33.9 32.3 31.6 9.8 2.2 33.6 30.1 1.6 31.3 9.2 6.5 3.8 6.9
CRISIL Insight
The subdivision of west Rajasthan is under severe drought with around 60 per cent deficient rainfall. Overall, Rajasthan faces the prospect of a drought this year. Coarse cereals such as jowar and bajra in Rajasthan are expected to be worst hit as there is significant lack of irrigation. Apart from coarse cereals, soyabean is also among the badly hit crops in the state due to lack of rainfall.
Maharashtra
Table 7: Crop wise DRIP Scores (Maharashtra) For the period from 1st June to Maharashtra 18-Jul 2007 Rice Jowar Bajra Soyabean Tur Ground nut Cotton Maize Sugarcane Food Grain Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16-Jul 2008 32.0 39.5 41.1 43.3 42.7 33.8 42.3 37.1 0.0 39.6 38.4 15-Jul 2009 12.5 15.5 16.1 16.9 16.7 13.2 16.5 14.5 0.0 15.5 15.0 21-Jul 2010 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20-Jul 2011 3.5 4.3 4.4 4.7 4.6 3.7 4.6 4.0 0.0 4.3 4.1 18-Jul Percent share in All India production 2012 21.7 26.8 27.8 29.3 29.0 22.9 28.7 25.1 0.0 26.9 26.0 3.2 53.2 11.8 22.1 37.3 6.6 24.4 10.9 22.0
Over 30 per cent deficiency in rainfall in Madhya Maharashtra and Marathawada subdivisions of the state. The worst affected crops are soyabean, tur, cotton, bajra, and jowar since they are largely un-irrigated. Though cotton sowing has been more than last year, it has been delayed due to the late onset of monsoons. This is likely to impact the yield and overall production of the crop. Sowing of cereals is down. With only 18 per cent of the area under irrigation, agriculture in the state is expected to be one of the worst affected in case of a monsoon failure. Contingency plans for sowing alternate crops in rainfall deficit areas have been prepared and shared with the state and are expected to be rolled out in the coming weeks.
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Karnataka
Table 8: Crop wise DRIP Scores (Karnataka) For the period from 1st June to Karnataka 18-Jul 2007 Rice Bajra Soya bean Tur Ground nut Cotton Maize Jowar Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16-Jul 2008 8.0 27.0 26.4 30.2 24.7 25.4 18.7 28.2 22.1 15-Jul 2009 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21-Jul 2010 2.4 7.9 7.8 8.9 7.2 7.5 5.5 8.3 6.5 20-Jul 2011 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18-Jul Percent share in All India production 2012 8.7 29.2 28.6 32.7 26.7 27.5 20.2 30.6 23.9 3.8 2.4 .8.0 11.4 9.4 3.6 18.0 21.0
As of July 18, 2012, the south interior subdivision of Karnataka is in severe drought (-50 per cent deficient rainfall) and north interior and coastal Karnataka subdivisions are in moderate drought condition (-37 per cent and -20 per cent deficient rainfall). The worst impacted crops are pulses such as tur, coarse grains such as jowar and bajra, and oilseeds such as soyabean, groundnut, and cotton. Rainfall has picked up in the state of late and is, thus, expected to improve the situation. Area under sowing so far is 1.88 lakh hectares this year as against a target of 5.71 lakh hectares (The Hindu, July 11, 2012)
Madhya Pradesh
Table 9: Crop wise DRIP Scores (Madhya Pradesh) For the period from 1st June to Madhya Pradesh 18-Jul 2007 Rice Jowar Bajra Soyabean Tur Ground nut Cotton Maize Food Grain Total 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16-Jul 2008 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15-Jul 2009 26.3 32.0 32.0 31.9 31.6 29.3 18.8 31.5 30.9 30.1 21-Jul 2010 24.4 29.7 29.7 29.6 29.3 27.2 17.5 29.2 28.7 27.9 20-Jul 2011 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18-Jul Percent share in All 2012 18.9 22.9 22.9 22.9 22.6 21.0 13.5 22.6 22.1 21.6 India production 2.2 8.4 3.8 64.3 12.5 4.0 3.6 6.3
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CRISIL Insight
Cumulative rainfall deficiency till July 18, 2012, was -23 per cent. The worst hit crops are jowar, bajra, and soyabean since the percentage area under irrigation of these crops in the state is extremely low.
%DEFj : Percentage deviation of actual rainfall from normal for state j %UNIRR captures vulnerability and %DEF captures deficiency. In the first instance, the index is computed for a particular crop in a particular state. If it is assumed that excess rainfall is equivalent to normal rainfall, i.e., the deficit is equal to zero, the value of the index will always lie between zero and 100. The higher the value of the index, the greater is the (adverse) impact of deficient rainfall. In effect, the deficiency is being compounded by a higher dependence on rainfall as opposed to irrigation.
Aggregation of DRIP
Once it is computed for a particular crop in a particular state, DRIP can be aggregated in two distinct ways, each of which provides useful information about the impact of rainfall deficiency: Crop aggregation: This aggregation reveals the value of the index for a particular crop across the country. It uses the production levels of the crop in each of the major producing states as weights in combining the state-specific DRIP values for the crop. The variation of the crop-aggregated DRIP value across crops shows the relative magnitude of the impact of deficient rainfall. State aggregation: This aggregation reveals the value of an index for a state as a whole. The DRIP values for all the crops produced in the state are combined using each crops share of cultivated area. The state-aggregated DRIP provides a picture of the relative magnitude of the impact across states, taking all major crops into consideration..
Limitations of DRIP
Some important qualifications need to be made in interpreting the index. Because it is aggregating rainfall over states, intra-state variations in pattern are not fully reflected. Full irrigation coverage does insulate crops against deficient rainfall, but the source of irrigation plays a critical role, particularly in a drought year, as some sources are more vulnerable than others. While irrigation in northern India is generally based on reservoirs (which apart from rainfall depend on melting of snow for replenishment) and tubewells, irrigation sources in the South (wells and tanks) have a
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relatively heavy dependence on rainfall for replenishment. Irrigation experts have pointed out that tubewells play a better protective role than tanks under a single drought situation (not preceded by another drought). Going by this evidence, deficient rainfall will have a greater adverse impact in the irrigated areas in the South as the sources of irrigation there are more vulnerable in comparison to the North. Our index does not cover differential vulnerabilities across irrigation sources. As a result, it is likely to understate the impact on southern regions.
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