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Friday, 13 June 2014

Weak Indian Monsoon: Concern for Indian Commodities Warehousing

El Niño is a 'warm' ocean current originating along the coast of Peru that replaces the usual 'cold' Peru or Humboldt Current. This warm surface water reaching towards the coast of Peru with El Niño are pushed westwards by the trade winds thereby raising the temperature of the Southern Pacific Ocean. A reverse condition is known as La Niña. Southern Oscillation, a phenomenon first observed by Sir Gilbert Thomas Walker Director-General of Observatories in India, refers to the seesaw relationship of atmospheric pressures between Tahiti and Darwin, Australia.

El Nino has been in news for long time because IMD, RBI and Economists warning about its negative impact on Indian agriculture and Indian Economy.

Basic understanding on El Nino / La Nina

During normal year two things are “STRONG”
· Cold Peru Current
· Trade Winds

As a result, cold water is dragged from Peru towards Australia as shown in the following image. Owing to the above current & trade winds two cycles are created as given in the table below the image. In above image, the red (warm) water region around Australia is called Western Pacific Pool (WPP). In the years of La Nina the above two currents become more pronounced and it results in more rains and even floods in Australia and South East Asian Countries and also results over supply of fishes in Peru region.

During the El Nino the above currents (Cold Peru Current & Trade Winds) become weak. As result, cold water is not dragged from Peru to Australia. But reverse happens – warm water is dragged from Australia towards Peru. Consequently, warm water + low pressure condition develops in the Eastern Pacific (Peru) and Cold condition + high pressure in Western Pacific (Australia).
Since Pressure is inversely related with amount of rainfall, the results are following:
· Warming of Pacific Ocean near Western coast of Peru and Ecuador. It Occurs @every 3-4 years; [In theory, it should occur @every 12 years]
· Its impact usually lasts for 9-12-18-24 months.
· It weakens the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern across the world.
Effect of the development in the Pacific Ocean results in the weakening of the trade winds and changes in Southern Oscillation, thereby affects the rainfall pattern.

Impact of Southern Oscillation
El Nino-Southern Oscillation (ENSO) water circulation happens between Australia and Peru But the wind movement is part of larger atmospheric circulation hence affects the rainfall over India. El Niño years directly impact India’s agrarian economy as their effect tends to lower the production of summer crops such as rice, sugarcane and oilseeds. This in return causes inflation to surge and lowers the Gross Domestic Product (GDP). India is the second largest producer of rice and wheat in the world.

How does it affect India and World?

To India
· Drought condition decreases the agriculture output, leads to food inflation.
· Declined supply of cotton, oilseeds and sugarcane negatively affects the textile, edible oil and food processing industries respectively.

To World
· Drought situation over South East Asia and Australia hurts rice and wheat cultivation respectively.
· Warm condition over Peru coast: unsuitable for Plankton population, thus bad for fishing industry. Birds migrate in search of fishes, thus less guano dropping for Fertilizer industry in Peru and Ecuador.
· Flood situation in South America & US Midwest lead to decline in coffee-cocoa and corn-wheat production respectively.

El Nino Phenomenon in India
According to Historical data of 126 years (1880-2005), about 90% of all evolving El Niño years have led to below normal rainfall and 65% of evolving El Niño years have brought droughts. However, one thing is clear that El Niño years do affect the weather in India in terms of Monsoon rain. During this time, the rainfall is generally below normal, which has its bearing on crop production. Here is a list of droughts taken place in India in last two centuries. Some of these have been an outcome of the El Niño phenomenon.


Period
Drought Years
Number of Drought
1801-1830
1801, 1804, 1806, 1812, 1819, 1825
6
1831-1860
1832, 1833, 1837, 1853, 1860
5
1861-1890
1862, 1866, 1868, 1873, 1877, 1883
6
1891-1920
1891, 1897, 1899, 1901, 1904, 1905, 1907, 1911, 1918, 1920
10
1921-1950
1939, 1941
2
1951-1980
1951, 1965, 1966, 1968, 1971, 1972, 1974, 1979
8
1981-2013
1982, 1986, 1987, 2002, 2004, 2009
6

Developments in Pacific Ocean

Over the past several months, the Pacific Ocean has transitioned rather dramatically toward an El Niño state. An powerful oceanic Kelvin wave—the strongest since a similar event in 1997 which preceded the very strong 1997-1998 El Niño event—made its way eastward across the Pacific Ocean during March and April and has now surfaced in the far East Pacific west of Peru and Ecuador.

Sea surface temperature anomalies have increased rapidly in this region over the past two weeks, with warm anomalies now extending across the entire equatorial Pacific.
The current spatial pattern, temporal evolution, and magnitude of sea surface temperature anomalies greatly resemble that which occurred in 1997. The overall volume of warm water associated with the current event in the Pacific actually exceeds that during the 1997-1998 events by a considerable margin.

The atmosphere has apparently started to respond to the recent surface ocean warming, with easterly trade winds continuing to weaken across most of the Pacific basin. There is evidence that a new Kelvin wave may be forming in the West Pacific, which (if true) would make further warming in the East Pacific essentially inevitable by mid-summer.

Numerical ocean-atmosphere models used to make predictions regarding the state of El Niño months in advance—are nearly unanimous in projecting the development of full-fledged El Niño conditions by late summer or early fall 2014. Chance of El Niño has increase over 65% by summer end.

During May-September 2013, well below-average SSTs were observed over the eastern half of the Pacific. From January - February 2014, SSTs were mostly below average across the eastern equatorial Pacific. Recently April – May 2014, SST anomalies have increased and are above average across the Pacific Ocean.

The tropical Pacific is now expected to warm throughout 2014, according to scientists from NOAA’s Climate Prediction Center and Columbia University’s International Research Institute for Climate and Society. That could produce a massive source of energy that would be strong enough to drive up global temperatures.

During April through mid-May the observed ENSO conditions moved from warm-neutral to the borderline of a weak El Niño condition. Most of the ENSO prediction models indicate a continued warming trend, with a transition to sustained El Niño conditions by the early northern summer.

Major Climatic Predictions for 2014-15 for World
  • Asia and Australia will see less rainfall as a result of El Niño, leading to drought and wildfires.
  • The western US faces storms and floods from an approaching El Niño
  • The sea level along California's coast may rise 30 centimeters, and then be pushed even higher by storm surges. Extra water may sound good, because California has been hit by a severe drought. But the raised seas may combine with heavy El Niño rains to cause devastating floods, as happened to the San Francisco area in 1997-98.
  • When El Niño arrives, Central and South America face a mix of storms, floods and droughts.
  • Major Climatic Predictions for 2014-15 for India
  • The onset of monsoon is likely to be delayed by a week (expected date 4th – 6th June)
  • Poor monsoon / drought like condition = commodities prices will rise especially sugar, pulses and edible oil. Government needs to stock them up, put restriction on exports, before black marketers start hoarding.
  • India is expected to see below-normal monsoon this year with Met department forecasting 95 per cent rainfall. India Meteorological Department (IMD) officials said the monsoon is expected to be below normal because of the El-Nino effect, which is generally associated with the warming of ocean water.
  • Farmers need to device alternate farming strategy, change the seeds and irrigation strategy for the drought like situation.
Impact of Poor Monsoon on Commodities Market
The poor monsoon mainly impacts the farm sector, which accounts for only 12 per cent of India’s GDP today as against 55-60 per cent during the time of the early 20th century British Viceroy. Yet agriculture and the monsoon still matter, particularly for what they do to price levels and how they influence inflation expectations in the economy. The prices of major farm commodities (cereals, pulses and oilseeds) are expected to increase sharply and there is a good opportunity to WSP (warehouse service providers) to enhance their rates as the commodities could be lower in supply.

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