Drought in 3 States, 2 More Flagged: All Eyes on Food Inflation

India's monsoon deficit has resulted in drought declarations in three states, just as a so-called "super El Nino" develops in the Pacific. Drought has been declared throughout many areas of Karnataka, Maharashtra, and Andhra Pradesh; the Center has also flagged drought conditions in Telangana and Rajasthan, both of which have state assessments underway, according to a Dun & Bradstreet (D&B) report. 

The India Meteorological Department (IMD) states that strong El Nino conditions exist over the equatorial Pacific and will continue to increase through the end of the year. The term "super El Nino" is not an official designation, but is typically used when the Nino 3.4 anomaly (the difference in sea surface temperature from the long-term average) in a specific part of the Pacific exceeds +2.0°C. 

Thus, the strain is seen in state budgets, bank balance sheets, and field conditions. 

Sowing Slips, Reservoirs Low 

Kharif (monsoon-sown) sowing was down 1.1% from last year at October 5th; food grain acreage was down 1.6%. Acreage for rice decreased by 3.5%; acreage for maize decreased by 2.9%; and acreage for cereals decreased by 2.3%. According to data collected by CMIE (Center for Monitoring Indian Economy) through October 1st, reservoir storage is lower than both last year's level and the 10-year seasonal average. 

The reduced buffer capacity is most significant in reservoir-dependent command areas where extended periods of rainfall shortages could negatively impact late-stage kharif crops and decrease water availability for rabi (winter-sown) season crops. D&B cautioned that lower storage signifies "a decrease in buffering capacity, not a confirmed loss of production." 

All eyes on agriculture inflation now.
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Where Does Risk Reside? 

Madhya Pradesh, Rajasthan, Telangana, Maharashtra and Andhra Pradesh collectively contributed 1400.3 lakh tons of food grain during 2025-2026, representing 37.7% of total food grain output among the 20 states analyzed by D&B. It would be challenging to compensate for simultaneous crop losses in multiple states through increased production elsewhere. 

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Will it Lead to Price Increases? 

"Weak harvests do not necessarily result in inflationary shocks," according to the report. Consumers will experience supply-side stresses only when production losses exceed inventories, market releases, imports and substitutions. Buffers are stronger for rice and wheat than they are for maize and pulses. Inventories of rice are large enough to absorb moderate setbacks without immediately impacting consumer prices. Public stocks of wheat are also sufficient to allow moderate setbacks to occur without immediately affecting consumer prices. 

Maize and pulses are more vulnerable. Maize serves as feed for poultry, livestock and aquaculture; it is used in starch production, processed foods, alcoholic beverages and ethanol production. Unlike rice, there are no public stocks of maize. In 2023-24, maize output declined by 6% while acreage increased by three% due to declining yields by 9%. Pulses can utilize imports to satisfy demand; however, this ties supply to international prices, exchange rates and trade policies. 

Business Implications 

Price pressures on businesses will likely become apparent in terms of procurement costs and working capital prior to any headline inflation becoming evident. Agriculture represents 57% of intermediate consumption in food products, beverages and tobacco manufacturing.

Therefore, food manufacturers will be the primary channel through which these pressures manifest themselves. According to D&B's database, Maharashtra alone contains 21% of companies involved in manufacturing cereal-based feeds; grain-based feeds; and seed-based feeds.

Although D&B indicated that a shock is not guaranteed; however, once these pressures begin appearing in inflation data; "the window for managing exposure will have mostly closed." Key indicators to monitor include final kharif output estimates; rabi sowing; reservoir levels; and prices of commodity categories that exhibit vulnerability.

ALSO READ: Record El Nino Now Threatens Winter Crop As India Sees Worst Monsoon

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