2014 farm output at risk, CPI to spike again

Last Updated: Mon, Mar 24, 2014 06:21 hrs

India's hope rally appears to be at risk. Even if a reformist government comes to power in May, global weather forecasts seem to suggest that it will be faced with the prospect of a weak agriculture output and rise in food prices.

For starters, the recent hailstorm is expected to affect output in the current year. The Street has already begun factoring in lower GDP growth for this reason. Also food prices, which dipped in February, may spike again.

Bank of America Merrill Lynch's Jyotivardhan Jaipuria and Indranil Sen Gupta say: "The hailstorm could likely result in an estimated crop failure at about Rs 12,000 crore (0.1% of the full year GDP)." However, for the quarter, this would be 0.4% of the GDP (4.8% BofAML estimated base case) and 2-2.5% of the agri-growth (forecast is 3.5%).

Added to this, the risks of an El Nino like situation are also building.

El Nino is defined as irregularly recurring flow of warm waters from the Pacific Ocean towards the western coasts of South America, which disrupt global and regional weather conditions. There have been 16 El Ninos since 1984 and only four have been strong in the last 50 years. Even if the El Nino isn't strong, agriculture output is sure to decline. In the years when the El Nino effect has been strong, the agriculture output has fallen by 4.7%, while the best case scenario has seen farm output expand by 4% since 2003.

This clearly highlights the risk the current year's El Nino forecast holds for the country's GDP growth.

Predicting EL Nino and its effects are a little difficult now as accurate predictions are possible only after the summer is midway through.

According to Jefferies, "Delayed monsoons are becoming increasingly frequent in the recent years. This then implies that even if El Nino is confirmed in mid-summer, the actual impact on monsoons will only be visible by mid-August."

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