Agri Business

Covid-19 puts India’s food supply chain to a stress-test

Siraj A Chaudhry | Updated on March 26, 2020 Published on March 26, 2020

The Covid-19 pandemic is taking a hard toll on the global economy.

India is no exception to this and a slew of measures are being taken by the Central and State governments to stem the spread of the deadly virus. Agriculture, the largest employer in the country, which is largely informal, is severely affected by distortions in the food supply chain induced by the pandemic. In the wake of the nationwide lock-down, empty aisles of stores and out-of-stock images of essential food items on online portals give the appearance of the country running out of supply.

Temporary bottlenecks

Industries calibrated to supply consumers with necessities are finding it difficult to cope with the sudden surge in demand. However, the supply of foodgrains and other essential items in the country are adequate, and there is no reason to get into panic buying. As of now, there is no shortage of material lying in the supply chain, but temporary bottlenecks in the flow of goods will distort supply chains for a brief period.

India is about to harvest a bumper rabi crop in the next few days, and the arrivals will soon start flowing into different primary mandis from early April. In such a scenario, the closure of several mandis and hiccups in the movement of goods will have a significant impact on farmers’ realisation, especially small and marginal farmers who can’t hold the produce for a longer time.

Lower realisations

Farmers who grow perishables, especially fruits and vegetables, are already facing the heat of the situation with prices plummeting, reduction in bulk demand from hotels and restaurants, and uncertainty over exports.

For example, banana prices in Andhra Pradesh at the farm level have seen a sharp fall from ₹15 per kg to ₹6 in the last 7-10 days, and ditto with mango. The current farm-gate realisations will play a significant role in rationalising the cropping patterns for the next season. If the normalcy in the movement of goods is delayed further because of the pandemic, lower farm-gate realisations will percolate to other commodities that are about to be harvested.

Edible oils’ supply side

On the other hand, import-oriented essential commodities such as edible oils will face supply shortage, and prices will move sharply higher. India had witnessed lower imports of edible oils in January and February on a YoY basis, while March will see a significant decline in imports. Pipelines are already tight because of lower domestic crush in the last two months, especially in mustard seed and soyabean. Lower crush and lower imports will lead to supply tightness in edible oils moving into April.

Consumer dietary patterns will see a shift once the situation comes to normal. Human protein requirements will be met mainly by vegetarian food items, and accordingly, demand for pulses will see a gradual uptick moving ahead. The shift in dietary patterns — though a temporary phenomenon — will play a significant role in rationalising the cropping trends of the farmers. As the prices of pulses and edible oils improve, farmers’ intention to cultivate these crops will improve, and higher acreages under these crops will be witnessed during the next cropping season. This would be a blessing in disguise for the country as the food import bill will come down.

Warehousing, crop cycle

Indian agricultural warehousing will be tested in the coming months even as the expected slowdown in the economy and concerns related to liquidity will hit the farming and trading community at a time when India is about to harvest a bumper rabi crop. The duration of storage of commodities in warehouses will take a longer time than usual, and scarcity of agricultural warehousing space will be seen at a time when the kharif crops hit the market, i.e., by November/December.

Governments’ support and intervention in stabilising prices will play a key role in deciding the farmers’ realisations this year as prices of most of the crops are ruling below MSP. The Centre has already announced that it will extend a fiscal stimulus to assist a faster recovery in the growth of the economy. Given the number of people involved in agriculture, a generous proportion of the stimulus should be allotted to this sector to ensure the effective implementation of relief measures.

The writer is MD & CEO, National Collateral Management Services Limited (NCML). Views are personal.

Published on March 26, 2020

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