Opinion
El Niño events show a weakening effect on food output and prices
Summary
Data analysis reveals India’s declining vulnerability and our safety net seems strong enough for this year’s anticipated event.
India’s agricultural production depends on the southwest monsoon, which accounts for 75% to 90% of the total annual rainfall from June to September. El Niño-Southern Oscillation (ENSO), classified as a periodic fluctuation in sea surface temperature (SST) across the central and eastern tropical Pacific Ocean, significantly affects the southwest monsoon. Conditions of above-normal warming of the SST are termed ‘El Niño’, which is further classified into weak (W), moderate (M), and strong (S) categories based on the extent of the SST anomaly.
Research has established that El Niño conditions strongly impact summer monsoons across India, and most severe droughts have occurred during El Niño events. However, a direct correlation between El Niño conditions and agricultural production is difficult to establish, as variables such as quality of seeds, usage of fertilizer, availability of irrigation facilities, etc, significantly impact our production.
Since 1950, there have been 26 El- Niño and 16 drought events in India, but not all El- Niño events resulted in droughts. For example, 2006-07, an El-Niño year, received normal monsoons, while 1997-98, despite being a strong El- Niño year, resulted in excess rainfall. Barring these exceptional years, 14 out of 16 times, a drought was led by El- Niño events, adversely impacting food production and inflation.
Preliminary analysis using data from 1950-51 to 2021-22 shows that the average deviation of total foodgrain production from trend levels is maximum in cases of strong El Niño conditions (-8.75 million tonnes or MT), followed by moderate (-6.81 MT) and -1.75 MT for weak El Niño conditions.
We aim to answer three essential questions by mapping WPI food inflation data across El-Niño events (W/M/S): (i) Whether the variability in food inflation due to El-Niño has changed; (ii) Whether the inflation peaks have subsided in the last couple of decades, and (iii) whether the carry-over effect of drought in the successive year has moderated.
Three significant trends emerge from our analysis:
One, between 1965 and 1991, food inflation in drought years was in the double-digit range, persisting into the following year. In addition to the years being a drought year, other idiosyncratic factors also played a role in the price rise, including the war in 1965, crude oil-price hikes in 1973-74 and 1979-80, the 1991-92 balance-of-payments crisis, and global inflation. Among these years, 1968-69 was an outlier with negative inflation, mainly due to uneven rainfall distribution across states. Moreover, with the advent of the green revolution, there was a jump in the production of foodgrains, contributing to negative food inflation.
Two, post-1991-92, food inflation remained in single digits, barring 2009-10, indicating reduced peak levels. One reason could be that the other external shocks mentioned earlier, like war, oil shocks, etc, dissipated. Moreover, there was a structural shift in terms of a higher share of the agriculture-allied sector (livestock) in gross value added (GVA). However, this was more pronounced from 2005-06 onwards. The allied sector, less prone to climate adversaries, supported agricultural growth for most of the years. The share of the crop sector in GVA declined from 65% in 1991-92 to 54.8% in 2021-22, while that of the allied sector increased from 35% to 44% during the same period. Post-2005-06, growth in the crop sector remained at around 2.7%, whereas the allied sector has grown on an average of 5.3%.
Three, the standard deviation of food inflation pre-1991-92 was 8.19, which dropped to 3.86 in the post-1991-92 period. This reduced variability is due to strong El-Niño events dominating the initial drought years, with 5 out of 6 strong El-Niño events occurring before 1992 and only one since then. This has contributed to the moderation in carry-over effects of El-Niño on food inflation.
Other significant reasons that support the argument of reduced pressures from El Niño events in recent years are as follows:
One, in recent decades, some literature has shown weak correlations between monsoon rainfall and the El Niño index.
Two, over the years, the percentage of total foodgrain area under irrigation has tripled from 18% in 1950 to 54% in 2020. With better irrigation facilities, micro irrigation and the use of quality seeds, the share of rabi-season crops in India’s total foodgrain production increased from 34% in 1966-67 to 50% in 2021-22. Studies have shown that the impact of ENSO on rabi is lower than on kharif production, which provides a cushion to overall foodgrain production levels in uncertain times.
It is reasonable to conclude that the impact of El Niño events on food production and inflation has certainly declined, owing to the lower frequency of these events in the last two decades, with most falling in the weak or moderate category. Moreover, over the years, the resilience developed on account of private investment in agriculture, the use of heat-resistant crops, greater mechanization, advanced weather information dissemination, government interventions in reforming agricultural marketing, adequate buffer stocks and precision-based irrigation has created a safety net for agriculture against such climatic distortions.
We hope India’s safety net is strong enough for this year’s anticipated ENSO.
These are the authors’ personal views.
V. Anantha Nageswaran, Shweta Kumar & Abhinav Banka are, respectively, the chief economic advisor and officers of the Indian Economic Service in the ministry of finance, Government of India
