Effects of climate change on agriculture in India

From March, temperatures in the country soared, with prolonged periods above 45°C and even occasional drifts up towards 50°C. This had an immediate human impact, with 40,000 cases of heatstroke and more than 100 confirmed heat-related deaths between 1 March and 18 June, with workers being sent home en masse.

It seems rising temperatures are here to stay. The Indian climate is predicted to warm at a higher rate compared to the global average, with heatwaves becoming more common and more extreme.

Whilst a temperature rise will have an impact across the industrial landscape, this will be at varying intensities – and an area of both unique susceptibility and importance is agriculture. The last few years have shown two distinct ways in which rising temperatures can have an effect, with dry heat having a pronounced effect on crop yields and humid heat having a larger effect on workers.

In 2022, India experienced an exceptionally hot March which was accompanied by a 71% decrease in rainfall, resulting in a 10-35% decrease in crop yields. In 2023, the country saw temperatures in excess of 40°C with high levels of humidity, which caused widespread heatstroke and a decrease in productivity.

In the future, it is estimated that such heatwaves will become 30 times more likely – and 1°C hotter. Ongoing temperature increases and associated pressures on agriculture could have a myriad of short- and long-term effects, most notably on both local and global food markets, and on the makeup of industry across the country.

Effects of climate change on agriculture in India

1. Crop yields

Whilst only contributing to 16% of India’s gross domestic product (GDP), agriculture has a unique importance domestically, regionally, and globally. Domestically, agriculture is the largest employer – 55% of the population work in the sector – with the majority being freelance day workers in poor rural areas of the country.

These workers are also those that are affected most by food inflation so any changes to the viability of agriculture would have the dual effect of threatening employment at the same time as driving up the cost of living.

The sector also has strong links to other domestic industries, most notably manufacturing. Exports feed 17.5% of the world’s population, mostly across Asia, and in global terms India is either the first or second largest producer of wheat, rice and cotton.

Further, the yields of crops are at risk. In spring 2005 a heatwave hit Ludhiana with 13 consecutive days of temperatures between 42°C and 43°C. The timing of this temperature rise accelerated the maturation of crops, which didn’t allow full growth of grains in terms of size and weight. It resulted in a 28% decrease in yield compared to previous years. Climate change in India is likely to impact crops more frequently; it’s predicted that global wheat production will fall by 6-10% for each further 1°C of temperature rise.

2. Productivity

Alongside exports and yields, the widespread heatstroke and rising number of fatalities relating to the recent heatwave highlight the resulting effects on agricultural productivity in India. productivity across industry. While there are adaptations that can be made in some sectors, such as the introduction of air conditioning into factories in manufacturing, this is of course not possible when the work is mainly manual and exposed to the elements.

The 2023 Lancet Countdown report estimates that during 2022 there were 191 billion labour hours lost across India due to temperature, up 54% when compared to the 1991-2000 average. This resulted in an associated income loss of $219bn, which equates to 6.3% of GDP. As expected, agriculture was hit the hardest, accounting for 64% of those hours. The UN Economic and Social Commission for India estimates that the number of hours lost will carry on increasing, with an increase of 5.8% by 2030.

3. Food security

The impacts of a decline in Indian agriculture, in line with ongoing temperature rise, will vary in both scale and geography. Shorter-term decreases in yield may influence food security both domestically and further afield, whilst ongoing declines may result in systematic changes to Indian industry.

The demographics and wealth distribution in India increase the population’s susceptibility to food inflation, especially in staple crops. The Indian government has therefore shown itself to be open to export bans to prioritise the domestic market, and safeguard access to food for those in the poorest demographics.

4. Trade

Over the last couple of years, we have seen restrictions in the trade of both wheat and rice in an attempt to control the effects of inflation. The year leading up to March 2022 saw fantastic wheat yields, allowing government stockpiling, and led to hopes that India could help fill the void left by the conflict in Ukraine.

However, the March heatwave and associated poor yields led to a policy change on 13th May, with the government announcing an export ban on wheat to safeguard domestic supply against price inflation. Consequently, the Chicago benchmark wheat index rose by nearly 6% over the next week.

There is a similar situation when considering rice exports. In 2022, India imposed 20% duty on exports of non-basmati white rice as a response to production concerns. A year later this transformed into a full export ban in response to continuing price inflation. Typically, India accounts for 40% of the world rice trade, so repercussions have been far reaching. Historically India has not been afraid to impose restrictions with bans at various points between 2007 and 2011, in addition to the more recent restrictions.

On a longer timescale, if a decrease in the viability of agriculture continues to emerge, we may see a restructuring of employment towards other sectors. An expanding manufacturing sector seems to be a viable alternative for displaced workers. It should be noted, however, that more than 50% of manufacturing-sector income currently flows from the agricultural sector. For example, decreasing yields in cotton will add supply-chain pressures onto textile manufacturing.

What's the impact on investments?

Direct exposure to Indian agriculture is probably unlikely in a typical portfolio. However, it is worth considering the risk of any investments which could be exposed to the adverse consequences from the effects of climate change in India. As a result, the monitoring of soft commodity price inflation is important. This is because it can affect the margins of food manufacturing companies if they were to be hit by prolonged inflation of staple crops.

Another area we monitor is the supply chain impact of unavailable inputs such as cotton. These risks are considered within our ESG materiality framework when assessing relevant companies like those in the retail industry. Further, the global impact of diminished productivity from heat is worth considering from a macro perspective, alongside the potential impacts of long-term migration, which could affect labour productivity.

With this said, it does not solely need to be a risk lens that we apply to our portfolios, we also look for opportunities including the growing interest and investment into climate mitigation strategies such as genome editing, as well as nature-based adaptions that businesses are employing to bolster yields.

Companies are engineering a range of adaptive approaches to ensure they can be sustainable for the long term and our research aims to identify these, as well as insulating against those that are not adapting to a changing world.

Meet Luke Wallace

Long-standing Harlequins flanker Luke Wallace joined the Charles Stanley Research Department for some introductory work experience as he considers his post-playing career. Luke worked on this piece whilst working with the Responsible Investment and Macro Asset Allocation teams.

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