El Nino: ‘El Nino’ fears raise food inflation worry – Times of India

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By Amit

MUMBAI: The monsoon may still be about three months away, but there are already concerns that an El Nino effect bringing drought-like conditions would raise food inflation. Several research reports have highlighted the possibility of a drop in agricultural output, keeping inflation high during the current financial year.
El Nino and La Nina are climate patterns in the Pacific ocean. They influence climate conditions worldwide. While La Nina benefits India, the El Nino creates warmer winters, dryer & hotter summers, and a deficient monsoon.
The US-based National Oceanic and Atmospheric Administration (NOAA) has predicted a re-emergence of El Nino with a high probability (55-60%) in June-December 2023. This could adversely impact the Indian monsoon during June-October. “Of the six times that NOAA ascribed a 45% or higher probability of El Nino in February, only three years saw El Nino actually panning out, while conditions were neutral (normal) in others. However, we also note that the probability ascribed in 2023 (55-60%) is the highest in many years,” said Jefferies in a research report.
According to a research report by Emkay Global, all instances of drought over the last 20 years have been in El Nino years. “A drought this year is likely to lead to worse price fluctuations, given the already tight supply situation and entrenched price pressures. This will tighten the fiscal situation further as minimum support price hikes will need to be higher to ensure fair returns to the farm sector – but this will further reduce the state’s ability to procure grains, as retail prices are likely to move higher as well,” the report said.
The reports come in the wake of the finance ministry’s monthly economic review, stating “some meteorological agencies predict the return of El Nino conditions in India this year. If these predictions are accurate, then monsoon rains could be deficient, leading to lower agricultural output and higher prices”.
However, overall consumer price inflation is dependent on many other factors besides monsoon and agricultural output. One of the main contributors is crude oil price and a decline can offset the increase in food prices. But analysts say that a fall in agri output would definitely impact rural demand.
“The prediction of a heat wave in March ahead of the Rabi harvest and initial forecasts of a below-normal monsoon this year due to El Nino is further adding to concerns about food inflation and fall in rural incomes,” said Mitul Shah, head (research – institutional desk) at Reliance Securities. According to Shah, soft rural demand, slowing hiring and moderating consumer durable sales are stoking concerns about the economy.

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