Rallis India to be buffeted by pressures on farm front

The ‘below normal’ monsoon prediction of the India Meteorological Department has just added to the woes of farmers, who are already reeling from the fall in commodity prices and unseasonal rains. Rallis India, part of Tata Group, has been working closely with farmers by providing agriculture inputs and crop protection services.

V Shankar, Managing Director and CEO, Rallis India, spoke to BusinessLine on what lies ahead for farmers and the company.

What is the key challenge for agriculture?

The availability of capital with farmers is tight. Unfortunately, it would have eased if the last kharif output had been better. The unseasonal rains early this year have played havoc. In Rajasthan, almost 50 per cent of the acreage is affected. The Government estimate on this itself is over ₹8,000 crore. If you add up the damage in other States, it works up to a loss of ₹20,000 crore. Almost all the crops, including wheat, maize and pulses, were affected.

We had heavy rain in March when farmers do not need it as the crops were ready for harvest. It was not only terrible but also unusual. It means that the farmers who were supposed to get this money are not going to get it. People like us who were supposed to get this food will not get it. We have to pay higher price for whatever food that will be available.

If it was challenging in India, it was even worse in the international market.

In Brazil, one of the largest producers of agriculture commodities, it was the worst drought. In West Asia, with Saudi riyal depreciating against the US dollar, farmers wanted to invest little in agriculture inputs. This had pushed up the inventory of agriculture inputs in Brazil. Globally, agriculture output had registered a growth of just 3 per cent against 8 per cent logged in the previous year.

Do you expect commodity prices to improve?

I think prices have to go up. We have seen little improvement in cotton and corn. Other commodities will also pick up. Prices can spike if the output in the US, Brazil and China goes down due to weather fluctuations. It depends on the global inventory and output estimate looking at the weather pattern in these countries. The fall in crude oil prices has led to pressure on sugarcane and corn. The demand for biofuel made from these commodities in the US and Brazil has come down. With oil prices having plummeted below the break-even point, agriculture-based biofuel would not be remunerative.

Will Rallis cut product prices?

Prices of inputs such as solvent we use are linked to crude. They take time to translate the benefit to end users. Then translating this into our own cost takes time because we also have our inventories. Moreover, we are into a sustainable solution. We have more of water-based than solvent-based products. So there are very limited basis where we can reduce prices.

Market prices and pressure are driven by various things. For instance, one of our flagship products for brown plant have many hopper did not takers because the pest did not occur last season. So there is a lot of pressure on pricing of that product. This is regardless of whether that product is impacted by crude or not. So there is no big corelation between input cost and selling prices, unlike in other industries.

How do you look at the next quarter?

The August quarter is usually a placement quarter because from May-end, agriculture starts again. So, the June quarter is very big for seeds. The onset of monsoon is very important. If rains do not come then the start of sowing gets pushed.

What would the company focus here on?

We would focus on improving the working capital flow in the coming months. Compared to our past where we had slipped is in cash generation because we were geared for higher sales. Our inventory levels have gone up as we were placing goods in the market in anticipation of higher demand. Since there was tight pressure on cash in the market place we were not able to manage the cash flow in line with our standards.

The cash flow in the market was tight because we had deficient rains in the kharif season. Along with low yields, we also had depressed crop prices. Overall, farmers could not make up for the low yield and low prices which normally does not happen. They used a major part of their cash to tackle urea shortage. This apart, farmers could not generate enough cash as they were not selling their produce hoping for better prices and whatever money they had went to source urea.

Did you give longer credit for dealers?

No. With sales remaining weak, dealers delayed payments by a few days and it started slipping. We have a cash discount facility for dealers who pay on delivery. In times of cash crunch, there is less people availing cash discount. They prefer to take the entire credit period than paying us on delivery. Usually, dealers in seeds and crop protection book products for kharif season by making advance payment. This time, advance booking was quite low in the industry due to cash flow issues.

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