Revision in crop production estimates raises questions on credibility

Crop estimates have been way off the mark between the first and subsequent estimates and over the years this divergence has grown

The Central government, in its second advance estimate for foodgrains production for 2022-23 (July-June crop year) released a few weeks back, scaled up the wheat production for the 2021-22 crop year to 107.7 million tonnes.

According to the previous estimate, this production was estimated at 106 million tonnes. While the reasons for the scaling up haven’t been spelled out, market players and traders are dismayed.

They feel that if wheat production in the 2021-22 crop year was indeed almost 108 million tonnes, there was neither the need to impose any ban on exports nor the Centre's procurement should have fallen drastically to just around 19 million tonnes from almost 44 million tonnes a year before.

And, most importantly, prices in the market would not have climbed to record highs all through the year. 

This is because if actual wheat production in the 2021-22 season was just 1.9 million tonnes less than the production of 2020-21, then India would not have gone through the crisis in the crop that it has been experiencing since then. Also the higher than expected numbers mean that the devastating heat wave in March 2022, over several states in North India didn't have any impact whatsoever on the standing wheat crop.

The trade estimates that actual wheat output was much less, somewhere around 95-96 million tonnes.

The disparity between what the trade estimates to be the actual crop and what has been the Centre’s estimates has been a long-standing and recurring problem in Indian agriculture that has spanned several years across several crops.  

In fact, in 2021-22 itself, the Centre’s first advance estimate of cotton production released on September 21, 2021, had pegged the output at around 36.21 million tonnes.

But, by the time the fourth estimates were released on August 17, 2022, the production had been revised downward to 31.20 million bales.

A massive drop-down of almost 14 per cent.

The revision also meant that India, a country looking to export cotton, had to scramble for supplies to meet the rising demand from its yarn and textile industry within seven to eight months.

Ultimately, the government had to slash the import duty of 11 per cent in April 2022 to enable yarn and textile makers to replenish their inventories

This year (2022-23), the Centre has pegged the cotton production at 34.19 million bales (1 bale=170 kilograms), which was 9.58 per cent more than the production as per the fourth advanced estimate of 2021-22 season.

But, given that estimates last year had undergone massive revisions, traders took the numbers with a pinch of salt.

Their apprehensions came somewhat true because according to the second advance estimate released last week, cotton output has been lowered to 33.72 million bales, a drop of 1.37 per cent in a span of a few months.

Traders feel that this too is on the higher side and the actual crop size is somewhere around 32.15 million bales, a good 4.5 per cent lower than even the revised estimate of the Central government.

Such revisions have been frequent and wide in almost all other crops be it pulses or even horticulture items such as potatoes and tomatoes.

All these make any firm price projections and inflation control strategies inadequate apart from raising big questions on the credibility of these production projections.

This is perhaps the reason that more often than not government is found on the wrong foot when it comes to adequately predicting price signals.

To fire-fight a looming crisis, it ends up using harsh and draconian measures such as export bans, stock limits, deregistering futures etc.

These do more harm than good and lead to fuelling market speculation.

The fact that governments still rely on old and jaded methods of crop estimation and field surveys is slightly difficult to digest in this age of high-tech and modern tools such as satellite imagery, drone technology, big data, machine learning, and Artificial Intelligence.

It is not that attempts have not been made by the Central government both the current and previous to modernise the crop estimation and prediction systems and some success have been achieved but the gains are few and far between.

A few years back, NCAER was roped in to provide periodic and regular updates on crop production estimates and price scenarios.

The project was abandoned a few years after that.

In the periods thereafter, there have been some attempts to modernize the system but none could take off in the right earnest.

Given that private sector organisations such as the Indian Sugar Mills Association (ISMA) and many others like the Soybean Processors Association of India (SOPA) are regularly using satellite imagery and field surveys to come out with fairly accurate and updated crop production estimates, it remains a mystery what stops the Central and state governments to apply the same modern tools and methods to come out with accurate production estimates.

The FY24 Budget does talk about building a digital public infrastructure for agriculture, which will be open source, open standard, and the inter-operable public good, which among other things will also help in crop estimation by supporting agro-startups and agri-tech industry.

Perhaps, what big governments could not do in years, maybe some new age tech start-ups could find value in years to come.