If the south-west monsoon is erratic, do manufacturers of agricultural inputs have reason to worry?
Not necessarily. Historical trends in consumption of key agri inputs - fertilisers, seeds and pesticides indicate that they don’t directly respond to the south-west monsoon rainfall pattern. This is in contrast to the conventional belief that monsoons have a direct impact on the demand for agri-inputs.
The demand for seeds and fertilisers has remained largely resilient to bad monsoons, as the purchase decision is typically taken ahead of the monsoon onset. While one cannot rule out a lag effect, government support by way of higher MSP, increased realisation due to a lower crop output may also insulate farmers from yield loss to some extent.
An analysis of the fertiliser consumption data over the last 10 years shows that fertiliser sales sometimes grew during periods of deficient rainfall. For instance, in 2009, albeit a 22 per cent deficiency in the rainfall, fertiliser consumption grew by 6 per cent. In 2002, another drought year, fertiliser consumption stayed almost the same as the preceding year.
A similar trend is evident in seeds as well. Interestingly, seeds distributed to farmers grew at a strong 11 per cent and 19 per cent in 2004 and 2009 respectively when the total rainfall was 13.8 and 21.8 per cent below normal.
If fertilisers and seeds sell irrespective of how the monsoon pans out, what about pesticides which are typically applied to the crop much later in the season? Pesticide consumption patterns over the last 10 years again show a weak relationship to monsoons. The reason seems to be that pest incidence and the nature of pest attack determine the consumption pattern of pesticides. Hence, a bad monsoon may not necessarily mean slow business for agri-input manufacturers! Conversely, there are sectors which benefit directly from a bad monsoon.
Cement is one sector that gains from a weak monsoon. A normal monsoon implies slowdown in construction activity and slackening cement demand. Hence, a weak monsoon may help sustain buoyancy in construction activity and, thereby, boost cement demand.
Cement consumption data clearly supports this hypothesis. Consumption growth during years of scanty rainfall such as 2002, 2004 and 2009 outpaced the growth during normal monsoon years.
“If it’s not listed, we’re not interested” seems to be the tenor of stock market participants when it comes to the monsoon. Though majority of Indians are dependent on agrarian activities for their livelihood and the sector contributes around 14 per cent of the country’s gross domestic product, the market has largely ignored the implications of rainfall for rural India. For instance, deficient rainfall vis-a-vis the long-period average in 2002 — a drought year — saw the Sensex decline by 5.4 per cent. But in 2009, another drought year, the benchmark index shot up by 15.4 per cent. The market swings were equally unpredictable in years when rainfall was normal, demonstrating that neither rain, sleet nor snow can stop the market and its participants from behaving in a way that defies attempts at divination. — Arvind Jayaram