The Hindu Business Line : Crop estimates have to be reviewed

THE first advance estimate of the kharif 2005 crops announced by the Ministry of Agriculture late last week makes interesting reading. It is understandable that the Government wants to play safe on crop production numbers.

In rice, coarse grains and pulses, the possibility of a downward revision in the near future cannot be ruled out.

Given the less than satisfactory distribution of rainfall (both spatial and temporal) till early September and acreage under various crops, the estimate for foodgrain crops seems to be slightly on the higher side.

Take rice. There is belief that the Government number is slightly overstated.

Crop observers and players in the grain market have begun to work on the basis of a crop size of between 70 million tonnes and 72 million tonnes (mt) or little changed from kharif 2004, versus close to 74 mt estimated by the Government.

Coarse cereals and pulses too are by and large expected to be about 10 per cent lower this season, although the Government estimates that the crop size has remained virtually unchanged from last kharif. Pulses output, for instance, is pegged at 4.5 mt by traders.

Both cotton and sugarcane constitute the most interesting part of the Government crop estimate for this season.

Sugarcane: There is no doubt that the cane crop this season is a significant improvement over last season; the question is by how much. The Agriculture Ministry's estimate of 257.7 mt this season versus 232 mt last year translates to an increase of only 25 mt of cane.

The sugar industry is working on the basis of a crop size of 280 mt, considerably higher than what is projected by the Government. On this basis, the industry estimates sugar production of about 18.0 mt during 2005-06, up from 13.0 mt in the previous year.

However, if the Government's sugarcane output number is taken as correct or close to reality, then there is only a modest improvement in cane output over last year. With additional cane output of only 25 mt and assuming that all this goes for sugar production (and not for alternative sweeteners such as gur and khandsari) then the additional production of sugar will be just about 2.5 mt and total sugar production 15.5 mt for 2005-06.

This has serious implications for the sugar industry and has the potential to completely alter the market sentiment. An increase of a mere 2.5 mt, down almost half from the earlier projection of a 5.0-mt increase, is bullish for the market - both domestic and global.

Import requirement for 2005-06 will be substantially higher than the projected 1.0-1.5 mt. It is absolutely necessary to revisit the crop size and make sure what the correct situation is.

Cotton: Another crop of commercial importance, cotton's output estimate by the Agriculture Ministry reflects a slightly lower size this season compared with the last. Indeed, talks with various stakeholders across the country suggest the crop this season is either just about equal to or slightly lower than last year.

Last year, the Cotton Advisory Committee estimated the crop size at 232 lakh bales (170 kg). This year it is unlikely to change substantially from that level. There are private reports that talk of bigger numbers - between 240 lakh bales and 260 lakh bales. Policymakers have to guard against overestimation of crop size as it will impact farm-gate prices and growers' incomes.

Oilseeds: Variation between the ministry's crop estimate and that of the private trade is nothing new in case of oilseeds. It has been going on for years. As against the Government's kharif 2004 estimate of 14.9 mt, the trade estimate was lower at 13.5 mt. In particular, no one trusts that soyabean output registered 7.5 mt in 2004. This year too, the variation between Government and private trade is likely to continue.

There is an expectation that the first advance estimate for kharif 2005 will be revised down in case of foodgrain crops. However, it is heartening that heavy rains in most parts of the country in the first half of this month have resulted in improvement in soil moisture and levels in various water sources. This should augur well for the rabi (summer harvest) plantings.

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