Buffer stocks will help sail through bad monsoon

Last Updated: Mon, Jul 20, 2009 07:14 hrs

Despite a truant monsoon, the pain of lower rains is manageable, believe researchers. Notwithstanding a grain shortage that is likely to push up prices of main commodities such as rice, sugarcane and soyabean further, they hope that India will scathe through this tough phase with its huge buffer stocks.

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''Despite the difficult period, global commodity prices which are on the their road to recovery and the huge buffer stock in Indian granaries would sail us through the tough season,'' say Goldman Sachs' research analysts, Tushar Poddar and Pranjul Bhandari. They predict most commodity prices, especially of rice, cane and soya, to settle down over the next one-year period.

The reasons for the huge impact on the three commodities are due to high weightage of rice in the inflation basket, cane where India has had to enter the imports markets this year and tight global supplies with renewed Chinese demand for soyabean.

''The gradually declining importance of agriculture to growth, the government's focus on rural sops partly protecting rural incomes and demand, the spatial distribution of rains within those areas with lesser access to irrigation facilities likely to get high rainfall, and a large buffer of food stocks at the state granaries will mitigate the impact,'' they say. 

Infact, India's rice stocks, which is at 21.6 million tonnes as of April 1, 2009, are higher than the buffer norm of 12.2 million tonnes.

The delayed monsoon had forced the India Meteorological Department to lower its rain forecast to 93% of the long period average of 890 mm from 96%. During August, which heralds the Kharif season of crops, weathermen peg the rains at 101% of the long period average of 262 mm. Kharif is the principal crop season accounting for 86% or rice harvests and 78% of oilseeds.

''Even if the rains are poorer than the current forecast, despite the rising fiscal deficit on the back of higher food subsidies, over a one-year horizon, global food prices would have the strongest impact on domestic food prices,'' the duo adds.

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Though the renewed IMD estimate reduces the agricultural growth pegged by Goldman Sachs to 1.4% year-on-year in FY10, the researchers feel that they will there will not be any significant negative impact on the markets.

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