“It is ideal for farming.”
Sun, rain and clean air have provided the silver lining in an otherwise bleak year so far. Rains have more or less evenly blessed the farming districts of the subcontinent, although some parts in Bihar, Assam, Gujarat, Telangana and Andhra have been hit by floods. Combined with availability of labour in villages due to reverse migration forced by the coronavirus pandemic, kharif sowing has been early and even, brightening the chances of an early and good harvest. Whether that would turn into festival cheer or year-end despair would depend on the market and prices.
A glut would depress prices but judicious planning and canny policies could ensure that agriculture production serves as the bedrock for an economic revival.
“Two major reforms that were undertaken recently would help better prices for farmers,” says Ashok Dalwai, CEO of National Rainfed Area Authority (NRAA) under the Ministry of Agriculture and Farmer’s Welfare, told ET Magazine. “The first is the deregulation of several commodities that were under the Essential Commodities Act. The second is allowing direct trade,” says Dalwai, who was also the chairman of the committee set up to find ways to double farmers’ income by 2022–23.
Three decades of liberalisation and attempts to transform into an industrial nation notwithstanding, India remains an economy largely dependent on monsoons and agriculture. Nearly 60% of its population still lives off farms and allied activities. Good prices for farm produce means higher incomes in rural India, the engine that drives sales of vehicles, consumer durables and discretionary goods.
An RBI survey in the first week of August showed professional forecasters expected GDP to shrink by 5.8% in 2020–21 but agricultural and allied activities to expand by 3.4%. An ET poll of economists revealed the economy may have shrunk between 14% and 26% in the first quarter. Investment bank Barclays’ research estimates that agriculture GDP growth could be as high as 8% or almost double the 10-year historical average.
“In nominal GDP terms, this implies that the agriculture sector could expand by 13%, compared with a contraction of ~2% we estimate for the overall economy,” analysts Rahul Bajoria and Shreya Sodhani said in a July 16 note.
The global havoc wreaked by coronavirus threw normal life out of gear in India, too, forcing factories, offices, malls, restaurants and shops to shut, bringing the economy to a halt in the first quarter.
Migrant workers from the northern and eastern states who work in distant industrial clusters of Tamil Nadu, Karnataka, Maharashtra and Gurgaon fled those centres when the government imposed a lockdown in March and April to curb the virus’s spread.
Factories’ loss turned out to be farming’s gain. “Availability of labour and low wages helped (sowing),” says Siraj Hussain, former agriculture secretary and currently visiting senior fellow at thinktank ICRIER.
Problem of Plenty
Madan Sabnavis, chief economist at CARE Ratings, is certain that there will be a glut and prices would be depressed. “We don’t have the ability to store. We don’t have a system,’’ Sabnavis says about India’s general inability to manage prices of farm produce. A couple of months ago, several states reported farmers dumping their produce by the wayside after wholesale prices on occasion crashed to as low as `100 per quintal.
The situation this season could get aggravated because of a dent in consumption due to the pandemic. “Prices will be at multi-year lows for many commodities,” says Prerana Desai, head of research at Edelweiss Agri Services and Credit. Desai says stocks of several commodities such as cotton, groundnuts, maize and soybean have been carried forward from the previous season and remain high due to low consumption. “The disruption in the hotel, restaurant and catering industry has reduced consumption by 10– 20%,” she said.
Often the government reaction to supply shocks is knee jerk, which worsens the situation.
A senior government official says onions offer a classic example of how short-sighted policies destroy the market. Onion exports have been consistently bringing in over $400 million annually. The bulb is an integral part of Asian cuisine and Indian onions are preferred for their pungent taste. Last year, ad hoc policies ruined the kharif season for onion farmers. After heavy rains destroyed the onion crop, retail prices surged and the government imposed stocking limits and an export ban.
When the ensuing confusion hit supplies in the retail market and prices skyrocketed, it commissioned imports. The process and norms were so business unfriendly that contracts took long and by the time consignments reached Indian ports, the domestic market was flooded with local produce causing a price crash. Besides, states rejected the imported onions saying they were tasteless and too pricey. In desperation, India offered the onions to neighbours, who too, refused. Officials say that some of it was eventually dumped in the sea.
Senior government officials, who spoke on the condition of anonymity, say that India has been getting enquiries from other countries that are facing shortages of food stuff to do government-to-government deals. However, that is not possible unless there is coordination and planning among various arms of the government. Even if they do, the government is not nimble enough to strike deals that require swift decision making and action.
“You have to be price competitive,” says Edelweiss’ Desai.
Last year, India’s non-basmati exports fell by 2.6 million tonnes because India could not compete on price. That shaved off $1 billion in export earnings compared to the previous year. This year, the government has been talking to countries such as Bangladesh and Vietnam for cotton exports but they were unwilling to commit to contracts as the new crop is due soon.
Early indications offer hope. The government reported that exports of agricultural commodities, mainly Bengal gram, wheat, tur dal and groundnut oil, in March-June were up 23% at `25,552 crore compared with the same period of 2019 when it was `20,734 crore. The agriculture ministry said export promotion forums had been set up for grapes, mango, banana, onion, rice, nutricereals (coarse grains), pomegranate and floriculture under Agricultural and Processed Food Products Export Development Authority.
Agriculture economist Ashok Gulati pointed out in a recent column that the golden year of agritrade was 2013–14, when exports peaked at $43.6 billion and imports were $18.9 billion, netting a trade surplus of $24.7 billion. Since then, agri exports have been sluggish and sliding and stood at $36 billion in 2019–20. Gulati said a strategy to raise exports of agricultural products and reduce imports would have to be based on the principle of “comparative advantage”.
“That means exporting more where we have a competitive edge, and importing where we lack competitiveness,” he wrote, pointing to the agri-export basket of 2019–20 led by marine exports, rice, spices and buffalo meat to give a sense of “revealed comparative advantage”.
NRAA’s Dalwai says it may take time for the reforms to have full impact but some results would be visible this season. For instance, he points out, a large part of about 165 million tonnes of storage capacity was used to store non-agricultural goods. He expects direct trade to use that capacity to handle agri products.
Deregulation of commodities would prompt more open participation of traders.
Even cooperatives and farmer producer organisations can add to the competition. He hopes that more competition from traders and Agriculture Produce Marketing Corporations would help better price discovery and lower storage time for farmers.
Dalwai also expects the food processing industry to buy directly from farmers. “A lot of MSMEs (medium, small and micro enterprises) are in food processing. The `3 crore financing support offered by the government would help them,” he says.
His expectations, however, could be dashed by market realities. Direct trade would liberalise the farm sector and allow more private participation but it is unlikely to benefit farmers much because there would be no regulation of private purchases.
Another risk factor is transportation. Several mandis have reported a shortage of loaders because most of them are migrant workers who have returned to their faraway homes. Many are reluctant to return. Those who are willing do not have the means to travel long distances as trains are not back on track. Truck drivers are reluctant to resume work because they are often viewed with irrational suspicion of being Covid-19 carriers. They are also wary of inter-state travel restrictions and police harassment.
Migrant workers are reluctant to go back to distant work locations.
“Distance matters,” migration expert S Irudaya Rajan had earlier told ET in a phone interview. Rajan had predicted that many workers would permanently stay away from distant places because of the bitter experience of the March lockdown. They would prefer to travel shorter distances in search of work, he had said.
ET had earlier reported how workers are now seeking higher wages than what they were getting before the pandemic. Higher labour cost would likely inflate prices all along the value chain.
Edelweiss’ Desai points out that the good monsoon could turn from boon to bane if rains continue for a few more weeks. “Since sowing was early this year, harvest would also be early,” she says. That means harvest would begin in September itself when the monsoon would still be active. If above-normal rainfall continues next month, it could damage crops, which in turn, could dramatically alter the situation.