Water sufficient till July, yield to be impacted: Edelweiss

The shortfall will be taken care by the carry-over stock of the government from last year, Desai said. On the issue of minimum support price (MSP) scheme, she said if government increases MSP, then it will actually have to buy stock; if they don’t, prices will suffer.

Below is the transcript of Prerana Desai 's interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.

Sumaira: The last few days we have received bountiful rains and yet there are some contradictory reports from the IMD as well as some private weather agencies about whether 2015, the season itself is going to be a normal monsoon or not. It is too early into the season, but for the sake of argument, what has been your own reading of the showers?

A: Monsoon forecast has always been a tricky question in India; we have not been able to capture even the next day 24 hours or 48 hours monsoon forecast. As you can see the way it has been raining in Mumbai in last 24 hours because we have been given warnings and there are signals. So, effectively we have not been able to forecast it, but so far the monsoon has been good. In fact, it is better than expected. It is 16 percent higher than normal monsoon and it has covered largely areas till central India. We are running behind by around 5-7 days time-frame.

Reema: In that context, would you still say that we should be in a wait and watch mode since July is more of a critical month for the monsoons historically?

A: The way we are seeing it – we have had good soil moisture kind of situation in January to March because of the untimely rains that we have had. In addition, we have been moving pretty healthily in the first half of June at least so far and most of the regions have had comfortable monsoon so far. From that perspective and of course the water reservoir, everything seems very good up until now. This will help the gap even if we were to have say lack of monsoons in the month of July or so, we will still be comfortable because water reservoirs are duly filled up and the soil moisture is comfortable.

It is only after July we will need to watch out for. The world is being affected by the El Nino, so it is not really over till it is really over. We will have to see how the monsoon is spaced out, which are the reasons that are going to be affected. The weather agencies, some of the global ones are also saying that north-west might get impacted the most. The north-west, Punjab, Haryana, Western U.P, are all irrigated regions, so even if we were to have a slightly below normal kind of monsoon, that should be taken care of. Unless and until there is some dramatic – the way IMD has been forecasting 88 percent of the normal monsoon - in that case, there will be a matter of worry, but so far there are no signs of that thing happening.

Sumaira: Clearly, it is the El Nino which will be the x- factor this time around. How much of an impact do you think the El Nino will have on India’s agricultural production if it indeed pans out the way IMD has indicated?

A: Edelweiss Agri Research has released a crop intention report, which is unique in itself. So, there are a couple of things that are coming out very clearly. Firstly, last year we were running behind schedule and last year’s net sown area as given by the Ministry of Agriculture was dramatically lower. Since, we have been moving along the monsoon in a rather normal way, we will have year on year higher acreage.

Now, that effectively means that from here onwards we are impacted by El Nino dramatically; that will impact the yield because acreage is going to be higher year on year. If the lower yield will be taken care of by dramatically higher acreage and hence, the total production number barring few crop specific production estimate, total production may not be impacted all that much because there will be higher area and lower yield.

Sumaira: That is interesting because what you are essentially saying is that the higher production will take care of low yields and for key crops like Basmati rice, the government could always dip into the buffer. So, in effect the overall production may not get impacted despite sub-par monsoon. Is that a fair reading of your report?

A: Yes, there are a couple of things that is giving this inflation outlook twist. One is the fact that we have sufficient carryover stocks from last season because exports have been very negligible especially in case of cotton, sugar, maize and paddy. We have sufficient stocks and huge crop from the last season that is suppressing the prices.

But there will be crops that will get impacted in case of lower production- something like pulses where we are running huge deficit and some of the oil seeds that has been seeing lower production especially in Rabi season. Oil seeds might get impacted, but it is crop-wise analysis and you cannot flatly say whether the prices will up or down for all the crops across the spectrum.

Reema: How have you read the government’s stance on minimum support prices (MSP) this time and largely the government’s rational stance has garnered a positive view from the economists as well. What has been your reading of the same?

A: MSP is a very tricky issue because especially when global prices have been falling, if you keep increasing the MSP, then government has to buy physically to support the prices and if government does not actually enter into buying, then the prices fall dramatically the way we have seen for maize. Despite having 1,310 MSP in the last season, the prices ruled at Rs 1,100 per quintal throughout the season in most centers.

Unless and until the MSP gets implemented, it really has no impact and the farmers’ decision is made up much ahead of time. Our report was released before the MSP was announced and whenever we spoke to farmers, there was positive vibe about the pulses, the oil seeds crop and Jowar seed crop. So, farmers usually make up their mind based on prices than purely on basis of MSP.

Reema: You are saying that overall acreage will be higher however if the north-western central India do get impacted the most. Which crops will be in this high risk zone?

A: Our agri research has studied many El Ninos and we have realized that there are few crops that do not get impacted by it or below normal monsoon. These are sugarcane because it is supplemented by largely irrigation, there is cotton because there has been technological breakthrough and it can sustain lower monsoon and cotton has been seeing higher acreage and improvement in yield and things like that. So, even cotton does not get impacted.

If El Nino materializes, then it will be the rice that will get impacted, we will see oil seeds getting impacted and some of the pulses will get impacted. Of all the pulses, Urad is the one which actually thrives on below normal monsoon and because the way we have seen pulses prices, we see that Urad crop will be higher no matter how the rain pans out. If the monsoon is above normal, chances of which are seen as very scanty by IMD, then Urad will get impacted but that will be compensated by the other pulses.