The Financial Times reports that weak monsoon threatens India food crisis.

(emphasis mine) [my comment]

Weak monsoon threatens India food crisis
By James Fontanella-Khan in Mumbai
Published: August 9 2009 18:35 Last updated: August 9 2009 18:35

The Indian government is poised to take action to prevent a food crisis, Manmohan Singh, India's prime minister, said at the weekend as the country's output of vital crops is threatened by one of the poorest monsoons in years.

Mr Singh said India was facing a difficult situation because 141 districts had been declared "drought affected". He urged state governments to take necessary steps to ensure the proper management of food stocks, to avoid a sharp rise in prices.

"Agricultural operations have been adversely affected in several parts of the country, causing distress to farmers and their families," Mr Singh said. "I would urge that wherever there is need, the states should immediately commence relief operations."

However, the prime minister stressed that, at this stage, the country was in a position to ensure adequate availability of food grains in all drought-affected areas and that none of India's 1.2m citizens would face hunger.

A good monsoon is vital for India's agricultural growth given that about 60 per cent of crop land is not irrigated and dependent on rainfall.

The current shortfall in rain has reached 8 per cent, according to the India Meteorological Department. However, several analysts expect the shortfall to rise to more than 15 per cent for the quarter ending in September.

Goldman Sachs said the poor monsoon was likely to have a negative impact on India's economy and the stock market, which has risen more than 60 per cent this year because of the decisive election victory of the centre-left Congress party and easing liquidity.

"We now think that the worse-than-expected monsoon takes away the recent upside to activity due to the continued easing of financial conditions and improving external conditions," said Tushar Poddar, chief India economist at Goldman Sachs.

"We think that rural demand will be negatively impacted and this is a significant negative shock for the equity market, with sectors catering to rural demand, such as fast-moving consumer goods, particularly affected." [This is what I mean when I say food spending will be a much larger part of world gdp: consumers will spend more on food and less on everything else]

White global sugar prices have jumped to their highest in more than 25 years as India, the world's largest consumer, has had to tap the global market to offset the impact of the poor monsoon on the country's sugar cane crop. However, prices in India are still lower than the cost of imported sugar.

The Economic Times reports that world pays more for food as India goes shopping.

World pays more for food as India goes shopping
9 Aug 2009, 1135 hrs IST, Subodh Varma, TNN

With sugar prices touching Rs 30 per kg and pulses averaging Rs 75-95 per kg, the government appears to be relying heavily on imports to ease the crisis. But the very thought of the world's largest consumer of sugar and pulses coming to shop has sent international markets into a frenzy.

On the New York-based International Commodity Exchange (ICE), sugar futures for October delivery on Friday broke a 28-year barrier set in 1981, reaching 20.81 cents a pound. In London, the futures price rose to $537.2 per metric tonne, the highest since 1983. Sugar trailed only gasoline and copper in terms of year-to-date returns. Analysts are unanimous that this hike is being driven by reports of the monsoon failure in the sugarcane-producing north Indian plains. The Food and Agriculture Organisation (FAO) predicts in its latest Global Food Outlook report that sugarcane production may slide by as much as 45% in India this year, forcing it to go looking for at least three million tonnes of sugar in the international market.

Although pulses are not traded in international futures markets [which means their prices aren't manipulated], their prices, like those of sugar whose futures prices broke decades-old records in New York and London, have been sky-rocketing in Canada, Australia, Myanmar and Turkey, which are the main exporters to India. World production of pulses has been stagnating at about 56 million tonnes for the past several years. Consumption of pulses, meanwhile, has increased in developed countries while it has declined in developing countries.

Global production of sugar is predicted to decline by about 5.4%, mainly due to lower production in India, Pakistan, Australia, the EU and the US. These declines have been partly offset by an almost 29% increase in sugar output in Brazil, the world's largest sugar producer.

Sugar has surged 76% this year on the ICE on speculation about rising Indian imports, according to Bloomberg. Last year, wheat futures saw a similar hike of 70% in Europe as soon as India bought nearly eight lakh tonnes of wheat, and wanted to buy more. All this means that the government will have very limited options—either it buys sugar at higher prices and sells lower in India by subsidising it, or it continues to allow free entry to imported sugar and lets consumers pay through the nose for it.

In India, by far the world's largest consumer of pulses, production has stagnated between 13 and 15 million tonnes, causing a decline in availability from 60.7 grammes per person in 1961 to 35.5 grammes in 2007. Pulses, the main source of protein in a largely vegetarian country, are increasingly getting priced out of the common man's reach.

My reaction: Sugar and pulses, like soybeans, are being driven higher by bad harvest and rising imports from emerging economies, in this case India.

1) The Indian government is poised to take action to prevent a food crisis as the country's output of vital crops is threatened by one of the poorest monsoons in years.

2) 141 districts had been declared "drought affected" in India.

3) A good monsoon is vital for India's agricultural growth given that about 60 per cent of crop land is not irrigated and dependent on rainfall.

4) Several analysts expect the shortfall to rise to more than 15 per cent for the quarter ending in September.

5) White global sugar prices have jumped to the ir highest in more than 25 years as India, the world's largest consumer, has had to tap the global market to offset the impact of the poor monsoon on the country's sugar cane crop.

6) The thought of the world's largest consumer of sugar and pulses coming to shop has sent international markets into a frenzy.

7) Sugar futures for October delivery on Friday broke a 28-year barrier set in 1981, reaching 20.81 cents a pound.

8) Sugar trailed only gasoline and copper in terms of year-to-date returns.

9) Sugarcane production may slide by as much as 45% in India this year, forcing it to go looking for at least three million tons of sugar in the international market.

10) Although pulses are not traded in international futures markets, their prices have been sky-rocketing in Canada, Australia, Myanmar and Turkey, which are the main exporters to India.


Conclusion: Add sugar to soybeans as a potential trouble area on US futures markets. In any case, the mad monsoon in India pretty much guarantees a food crisis in the second half of 2009.

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I didn't get the chance to finish the major article I was working on. I will finish it later this week after I get to Moscow.