Poor monsoon threatens first drought in five years

NEW DELHI Fri Jul 11, 2014 9:47am IST

A milkman rides a motorcycle during a heavy rain shower in Chandigarh July 2, 2014.  REUTERS/Ajay Verma

A milkman rides a motorcycle during a heavy rain shower in Chandigarh July 2, 2014.

Credit: Reuters/Ajay Verma

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NEW DELHI (Reuters) - Weak rainfall in India since the start last month of the monsoon season, crucial to the country's agricultural earnings, has raised concerns of a first drought in five years, although weather experts are hopeful rains will revive in the next week.

A poor monsoon cuts exports, stokes food inflation and leads to lower demand for products ranging from cars to consumer goods, while a slow start could delay exports of somecrops and increase the need for imports.

Rains last week spread to soybean areas in central parts of India and cane areas in the north, but overall rains stood at 43 percent below the seasonal average, a weather office update showed.

In 2009 the worst drought in nearly four decades forced India, the world's top sugar consumer, to buy large quantities of the sweetener from top producer Brazil, driving benchmark New York futures to a 30-year high.

The farm sector accounts for around 14 percent of India's nearly $2 trillion economy, and two-thirds of its 1.2 billionpopulation live in rural areas.

"The monsoon appears to be more unpredictable," Finance Minster Arun Jaitley said, presenting his maiden budget onThursday.

India, one of the world's top producers and consumers of rice, corn, cooking oil, sugar and cotton, relies heavily on thesummer rains as nearly half its farmland lacks irrigation.

The lacklustre monsoon could push up edible oil imports bythe world's top palm oil buyer. That in turn could underpin benchmark Malaysian prices of the tropical oil that have plunged more than a tenth this year.

The monsoon this year arrived five days late on the southernKerala coast, and then covered half of India four days laterthan the usual date of June 15. Usually, the monsoon covers theentire country around mid-July.

"The water-stressed western region is expected to receive good rainfall next week as conditions have become favourable for a revival," said M. Rajeevan, a senior meteorological scientistwith the ministry of earth sciences.

DROUGHT CONCERNS

Delayed progress of monsoon rains towards the grain belt of northwest India and oilseed-growing regions of central and western India has prompted concerns about a shortfall in grains output, causing prices of some food items to rise.

Jaitley said last week there was no cause to panic about the possibility of higher inflation, after a private forecasting agency said there was a 60 percent chance India would face a drought this year.

"Even if due to inadequate rainfall there is a marginaldecline in agricultural production, stocks in the central poolare adequate to meet any exigency (emergency)," Jaitley said..India's government under new Prime Minister Narendra Modihas moved to ease market concerns over supply shortages and price speculation with a number of steps, including raids against hoarders.

Policy makers in New Delhi fear a failure of this year's monsoon could push up retail food inflation by at least one percentage point.

Soaring prices of basic goods such as milk and potatoes lifted retail food inflation in May to 9.4 percent and the poor monsoon has fanned fears of worse to come.

(Additional reporting by Manoj Kumar; editing by Keiron Henderson)

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