India has maintained a tight balance between supply and demand in a number of essential commodities since the 1960s. As the population grew after the end of British rule, the threat of imminent catastrophic famine prompted the Green Revolution, which introduced then-current farming techniques. Those innovations saved the day and prevented millions of forecasted deaths from starvation.
Since then, production has roughly kept pace with consumption, growing with population and prosperity. Indian self-sufficiency has allowed the world to focus its attention elsewhere: on extreme deficits in China and matching surpluses in South America. But it seems likely that the tranquil state of Indian agricultural affairs could come to an abrupt end in the next few years. The gross size of the subcontinental market means that relatively small net changes loom large in comparison with worldwide statistics.
India remains far below its potential capacity according to yield gap analysis, which takes deteriorated soil and water quality into account. Advancing Indian agriculture to meet its potential would require unpopular commercializing reforms to justify investment in equipment and inputs. Under the current framework, that investment doesn’t make sense and will not happen.
But population will keep growing, and if prosperity continues as forecast, Indian demand will take off the way China’s has. This will add another China-style boom in appetite for high-protein food in a world already struggling to simultaneously meet China’s still-climbing needs and prepare to deal with an expected sub Saharan demand surge.
Four major commodities exemplify two critical influences for the future of Indian agriculture. In the cases of less important foodstuffs, this 2x2 matrix can work as a good starting point for analysis. For each commodity, how much effect does a delayed monsoon have on production, and how does per capita income growth impact demand? For these “big four” Indian foods, details follow below:
India reigns as the undisputed superpower of global dairy. At only about 20 percent of the world’s population, it produces and consumes almost 35 percent of the world’s dairy products. At 79.8 percent Hindu in the 2011 census, the country shows great respect for bovine animals, mostly refusing to eat cow meat. In fact, the majority of Indian states outlaw the consumption, and even possession, of beef.
Consumption of dairy products, on the other hand, conveys refinement to many Hindus. As a result, India not only has more cows than any other country, but its people consume more dairy per capita than those of any other country.
Our research shows no reason to think that dairy production in India will become more volatile, but if it did, it would have a seismic effect on the global market. For every 1 percent change in domestic demand or supply, we can expect exports equal to 0.35 percent of the total demand in the rest of the world. If India’s economy grows at the forecast rate, we can expect dairy demand to grow rapidly as well. In a society generally more reluctant to eat meat than others, a main way to increase dietary protein will be milk and other dairy products. The dairy cows of the world should prepare for an Indian demand wave.
Rice supplies 20 percent of the world’s nutrition, and India produces and consumes 30 percent of it. Unlike dairy, rice consumption should only increase in line with population growth. Based on the China experience, per capita income growth should have a smaller or zero impact. The likelihood of monsoon problems causes ongoing concern for the Indian rice market balance. A harvest shortfall of 1 percent leads to import demand of an incremental 0.3 percent of global production. Indian rice tends to be cultivated in the south, which suffers the most from monsoonal variability.
The rice market differs from the dairy market in other important ways. Any significant shortfall in global rice production could quickly result in catastrophic famine. Asian and African consumers have no easy recourse to other dietary staples. Major policy changes in developed surplus countries would need to quickly take place to fill the calorie gap. Also, the production statistics for rice show more volatility than dairy numbers, both globally and in India.
The combination of great importance, outsized production, and high volatility make rice an Indian commodity to watch as closely as dairy, despite a less-dominant position in world markets.
India produces about 18 percent of the world’s sugar. From a demand perspective, sweeteners exhibit income responses similar to that of protein. As per capita income rises, so does sugar demand, at an accelerating rate. India’s economic growth, therefore, raises the prospect of rapidly increasing global sugar demand.
Calories from sugar rarely settle life-and-death questions. Shortfalls and surpluses command less attention than those of critical foodstuffs like rice. But the global sugar market is currently suffering from a prolonged price slump, leading to economic hardship in large sugar-producing countries like Brazil. India’s forecasted demand growth provides one of the few hopeful stories available to those producers. If Indian sugar demand grows at a similar or greater rate than China’s has, imports will become necessary to satisfy it.
India’s wheat crop makes up 15 percent of the global total and plays a vital role in supplying the population’s nourishment. Observers can reliably predict the crop’s size due to its location in the northern half of the country, which is less affected by monsoon-related volatility. Furthermore, deep and liquid global markets for wheat exist and stand ready to absorb a surplus or fill a deficit.
Nevertheless, the Indian wheat farmers perform an essential function, providing cereal-based calories in a quantity second only to rice for their countrymen. From a global perspective, the odd 1 percent fluctuation in Indian supply/demand will result in a 0.15 percent swing in global balances, which will move prices but not cause significant alarm.
India should occupy the top spot on agricultural observers’ and policymakers’ lists of countries to watch. Despite its multi-decade record of self-sufficiency, when per-capita income begins to ramp as forecast, demand will likely skyrocket in a manner similar to China in the early 2000s. Increasing spending money in people’s hands will mean rapidly increasing consumption, particularly in the discretionary food categories like dairy and sugar. This potential boom will likely result in increasing external food trade as demand growth will outstrip the country’s ability to grow supply. Global producers, shippers, and middlemen stand to profit tidily and should prepare.
The other side of the growth issue relates to the future of non-discretionary foodstuffs like rice and wheat. As the Indian population reliably continues to grow, the margin of error for supply and demand will shrink commensurately. The potentially severe consequences of a significant shortfall in essential cereals like rice and wheat should concern market participants all over the world. The knock-on effects of a supply shock in India could cause harm in unexpected places, as poorer countries lose bidding wars. Desperately needed commodities could get re-routed to Indian ports as a result of a formerly routine delayed monsoon.
The markets have become complacent about India’s agricultural importance because of an extended calm spell. That period could very likely end in the next five-to-ten years. Gro Intelligence subscribers will see that process transpiring through satellite and land-based information sources including the recently-added India DAC database. Furthermore, Gro Intelligence analysis and models will highlight the warning signs of an emerging shift before it begins.