India - The Slowest Car Crash In History?

India, the second most populous country on the planet (1.1479 billion people and rising last year), has just suffered the worst period of monsoon rains since 1972, 22% down on normal to Sept 23rd. Drought has spread to nearly half its more than 600 districts.

It is also the world’s second largest consumer and producer of wheat.

The country depends heavily on monsoon rains which fall between June 1st and mid-September as they provide around 75% of the country’s entire annual rainfall. An estimated 60% of the country’s farmland is non-irrigated and depends entirely on natural rains to water the land.

A sporadic monsoon season, in which June rains were the worst in 83 years, means that India's sugar cane crop is expected to fall 20%, and rice output 17% this year.

Winter wheat planting, which begins next month, will be more heavily dependent on irrigation this year. Unfortunately with reservoir levels only around 40-50% of capacity hydro-electric power shortages will also impact upon the country's ability to physically pump what little water it has into the fields.

The late arrival of the rains this year also means that much more of the summer-planted rice was sown late, potentially impacting on farmers’ ability to get their wheat into the ground in a timely manner this year.

The government recently introduced a limit on the amount of domestic sugar stocks that large companies like Nestlé and Pepsi can hold to just 15-days supply.

They say that this is to prevent hoarding. Critics say that as the limit doesn’t apply to imported sugar, it is merely an attempt by the government to pass the onus of high world sugar prices onto these large multi-national companies, forcing them to import more sugar than they would otherwise.

Now there is talk of introducing similar restrictions on soybeans, edible oil and wheat. They've already extended a ban on exporting edible oil to last until September 2010.

Checking back through the records there are only three years in the last thirty when monsoon rains in India have been 15% or more below normal: 1979, 1987 and 2002.

In each of these years, not only did summer crop production fall significantly, winter output was also sharply lower.

The government say that they are confident that the country can produce around 79 MMT of wheat in spring 2010, and are considering raising the minimum price that they will pay farmers for wheat to encourage increased plantings.

Meanwhile they have been promising for months now to release state-owned wheat stocks onto the domestic market to contain spiraling prices, but consistently keep failing to do so.

Maybe they aren't as confident that they can produce a near record wheat crop as they would like to make out? Historically, the worst monsoon rains since 1972 suggest that it is highy unlikely.