Agri Business

Cash crunch sows the seeds for a bitter harvest

Vishwanath Kulkarni Bengaluru | Updated on January 16, 2018 Published on December 29, 2016


A good monsoon revived the farm sector, but note ban skewed the market dynamics

The impact of demonetisation, the year-end shocker from the Modi government, is seen extending into the new year the pain in the country’s farm sector, which was hoping to bounce back, tracking a near-normal monsoon after two consecutive years of droughts.

The currency crunch, however, coincided with the kharif harvest season, impacted farmers’ incomes, and added to the distress in the sector. Producers of perishables such as fruits and vegetables were hit hard on account of poor consumer demand; the prices of key kharif produce, such as paddy, maize, soyabean and pulses, among other commodities, were adversely influenced by the cash crunch.

The cash crunch not only lengthened the credit cycles, it also brought back the age-old barter system in several areas as the rural populace try to work around the crisis. Almost the only positive fallout has been that the crisis brought a large section of farmers and farm labourers under the ambit of banking.

In the first half of 2016, the impact of the poor rains last year manifested itself in a full-blown drought: a major part of the country reeled under the impact of the harsh summer. Dry weather affected the production of various commodities, including sugarcane.

Monsoon to the rescue

But the timely arrival of the monsoon brought in widespread rains across many parts, except in the Southern Peninsula. It raised the prospects of a bumper foodgrain output this year, and was seen helping lift the overall growth rate in agriculture and allied sectors. In fact, the kharif foodgrain production is pegged at a record high of 135.03 million tonnes.

The government is targeting foodgrain output of 270 million tonnes in 2016-17, against 252.22 million tonnes last year, and expects the growth in agri and allied sectors to be around 4 per cent, against 1.2 per cent last year. While admitting that the demonetisation did have a marginal impact on growers of perishables such as fruits and vegetables, Ramesh Chand, Member, NITI Aayog, expects the overall farm sector growth to be over 5 per cent this year.

A flare-up in prices of pulses for much of the year was harsh on consumers’ pockets, necessitating large-scale imports. The high prices ahead of the planting season in the International Year of Pulses prompted farmers to plant a record area under the legume crops, resulting in a bumper harvest of most kharif pulses. That in turn led to a sharp decline in prices, in many cases below the minimum support price levels. Growers, especially of green gram ( moong) felt that government intervention in terms of timely procurement would have reduced their hardships.

“The situation is stable now and the prices of pulses are expected to be range-bound next year on ample supplies,” says Pravin Dongre, Chairman of the India Pulses and Grains Association (IGPA). An estimated 26-27 lakh tonnes of pulses have been imported during October-December, Dongre said, adding that an additional 5 lakh tonnes could come in by end-January.

Prices of sugar and wheat too firmed up during the year on supply issues. The government recently scrapped the import duties to boost supplies of wheat. The roll-out of the Pradhan Mantri Fasal Bima Yojana, the launch of electronic National Agricultural Market (e-NAM) and the fixing of the retail price and royalty for Bt cottonseed, were the major initiatives taken up by the government during the year.

Outlook for 2017

The price outlook for agri- commodities in 2017 will likely prove a mixed bag: supply-side constraints are likely to hold up prices of softs such as sugar, cotton, coffee and wheat. On the other hand, ample supplies could keep a check on the prices of edible oils and pulses, the two largest agri-commodities imported into the country.

“Prices of softs are likely to be bullish going ahead, as the domestic output of cotton, sugar and coffee is seen lower than expected,” says Amit Bharadwaj, CEO of Level A Commodities.

The bullish trend is already being reflected in the prices of cotton, which have been inching up on lower market arrivals. Raw cotton prices are hovering around ₹5,200-5,300 per quintal. Cotton has started rallying as arrivals have been rather sluggish, while sugar, which witnessed a rally for much of 2016, is likely to stay firm.

The sugar industry maintains that there will be enough supply to meet the domestic demand, and that the country may not need to go for imports. In the case of edible oils, higher supplies, both at the global and domestic levels, are expected to keep prices in check in the year ahead.

In the case of plantation commodities such as tea and coffee, the climatic conditions in South India in the next four months will be a deciding factor for the prices. C Vinayaraghavan, former APK (Association of Planters of Kerala) Chairman, said the orthodox tea prices could prove bullish as production in Sri Lanka is not doing well.

However, CTC prices will remain competitive as Kenya, the major production centre, is producing more to cater to global markets. There will not be much change in domestic production and consumption, with the figures remaining at the normal level.

With inputs from V Sajeev Kumar and Rutam Vora.

Published on December 29, 2016
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