India Kharif output expected to fall this year

India’s output from the kharif, or summer, crop is expected to fall 4-5% from last year, the first decline in three years, because of erratic monsoon rainfall followed by flooding in many states, an end-of-season assessment of key farm parameters shows.

The upshot of a projected decline in food output is that it is expected to, at least slightly, push up flat food prices, especially of grains.

Economists vary in their estimates of the price fillip. But any upswing will bring some respite to farmers battling low food prices and sliding profitability, analysts said. Summer output accounts for nearly half of the country’s annual food production. The monsoon has swung wildly, going from deficit to surplus. Rains were 36% deficient in June, the start of the rainy season, to a 1% surplus by August-end.

Subdued food inflation benefits consumers or net buyers of food items, but they also hurt farm incomes, especially because commodity prices are not keeping pace with rising costs of cultivation.

Lower farm incomes have weakened rural demand for most other goods, from biscuits to gold, stoking a broad-based slowdown, risking economic gains. Signs that the economy has lost steam are unmistakable. The economy grew at its slowest pace in more than six years at 5% in the first quarter (April-June) of 2019-20, compared to sluggish 5.8% growth in the previous quarter (January-March).

Some economists have projected an improvement in the price trend for “field crops”, economic jargon for grains such as rice, wheat and coarse cereals. Key reasons why analysts foresee some correction in farm prices include stronger paddy prices on lower output, Chinese demand for Indian cotton, higher soy meal exports and better domestic soybean prices due to an increase in import duties on palm oil, a soybean substitute.

According to CRISIL Research’s Agriculture Report 2019, which analysed the summer season that is drawing to a close, farm profit from field crops is expected to increase 10-12% because of “expected higher prices”.

Economists feel grain prices may get a small boost from the so-called base effect: prices have been too low and therefore set to rise. The base effect refers to a statistical distortion caused when a current period is compared to any previous period of abnormally high or low values. For instance, in this case inflation may appear higher if the base to which it was compared is very low. Secondly, a dip in cereal output is likely to raise prices too, although marginally.

A delayed start to the June-September monsoon has led to a sharp 6.4% fall in paddy sowing, data until August 22 shows. Paddy accounts for over 30% of total sowing during the summer season. This has pushed up the area under cotton and maize cultivation.

Summer output rose 2% to 168.1 million tonnes in 2017, while production in 2018 was 170.7 million tonnes. This year, it could dip to about 162.2 million tonnes, Crisil said.

“Amid the pickup in monsoon and contraction (decrease) in sowing deficit, we expect performance to stabilize in Q2FY20,” an analysis from Edelweiss Securities Ltd said.

According to Hetal Gandhi, director, CRISIL Research, northern states are expected to “reap the highest profits owing to a more favourable crop mix, limited dependence on rainfall, and higher farm mechanisation”. States such as Gujarat, Madhya Pradesh and Rajasthan are expected to register healthy growth in farm profits driven by bajra, cotton and soybean crops prices, she said.