Agri Business

Farm sector awaits its own booster dose

Rajalakshmi Nirmal BL Research Bureau | Updated on September 30, 2019 Published on September 30, 2019

While corporates are being showered with bounties, there is one segment that is crying for attention — agriculture.

Three years have gone by since Prime Minister Narendra Modi promised to double farmers’ income (by 2022), but the Centre is silent on the progress on this front so far. In fact, it’s been a double whammy for farmers: on the one hand, they are faced with falling prices for their produce; on the other, prices of inputs have been rising relentlessly.

The wholesale prices of most pulse crops, including tur (red gram), urad (black gram), bengal gram, and even oilseeds especially groundnut, are 15 to 30 per cent lower than the prices recorded three years ago.

While the Centre increased the minimum support price (MSP) for crops last year offering a 50 per cent return on cost of production, there has not been much relief as procurement has not scaled up. In fact, paddy, ragi, bajra, moong, urad, arhar, groundnut, soyabean, rapeseed and mustard are all trading below their MSPs now, according to a CRISIL report.

The increase in output in recent years has not met with a commensurate rise in demand, pulling down the prices, in the process.

Besides low output prices, another factor squeezing profits for farmers is the rising cost of inputs. The prices of high-speed diesel (HSD), DAP (diammonium phosphate), insecticides and pesticides, agriculture tractors, cattle feed and electricity, have all moved up in the last three years. So, doubling farm income seems a distant dream, with income going back to even the 2015-16 level appearing difficult.

Input prices up sharply


The prices of different farm inputs have been on an upward trajectory in recent years. The Wholesale Price Index (WPI) captures the trend in some of these inputs. For instance, the WPI on HSD has gone up from around 65 in mid-2016 to 94 now.

Similarly, the WPI on insecticides and pesticides has gone up from 110 to 120. The index for agriculture tractors, cattle feed and electricity has also moved up. In terms of percentage, the price increase in these farm inputs has been to the tune of 5-10 per cent in each of the last three years.

Further, labour costs have also gone up. Wages of agricultural labour were up 5 per cent in 2018, after rising 4.7 per cent in 2017 and a negative 1.9 per cent in 2016, shows data from the Centre for Agricultural Costs & Prices (CACP). Some States such as Rajasthan, AP, Bihar, Karnataka and Tamil Nadu have in fact seen sharp increase in labour costs to the tune of 5-14 per cent in 2018.

The rising trend in input prices is also seen in the Input Price Index of CACP. Though the index shows a lower increase in overall costs (+4.5 per cent CAGR in the last three years), the trend is only up.

Ground-level observations, however, show that the rise in costs for a farmer has been far higher.

A representative of farmers from Maharashtra said that labour costs have gone up from around ₹250/day to ₹280-300/day now in the State. Note the fact that labour costs make for almost half the total cost of production for a farmer.

Also, the farmer stated that the price of fertilisers, especially DAP, has gone up from ₹1,100/bag (of 50 kg) two years ago to ₹1,400/bag now.

The price increase in DAP can be explained by higher prices of phosphoric acid and the increase in price of potash in the international markets.

India meets its entire demand for potash through imports; so, weakening of the rupee has also resulted in higher price of fertilisers where potash is a key raw material.

In fact, prices of potassium chloride, commonly referred to as MOP or muriate of potash, have also gone up in the last one year, added the representative.

The other key input — natural gas, which is a feedstock for manufacturing fertilisers — has also seen prices go up since 2017. From $2.48/mmbtu in April 2017, the price of natural gas has increased to $3.69/mmbtu now.

Published on September 30, 2019

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