After two torrid years of their incomes taking a hit from drought as well as poor produce realisations, Indian farmers finally seem set for better times.
The reason is not just the prospect of a bumper crop on the back of a great monsoon so far, resulting in increased plantings in the current kharif season. No less important is a second factor — a gradual recovery of farm commodity prices from the lows of the past couple of years.
Between January and July, the Food and Agricultural Organisation’s Food Price Index (FPI) has risen 8.4 per cent, from 149.3 to 161.9. This is also reflected in the global prices of most agri-commodities currently ruling higher than their levels from a year ago. Although nowhere close to their peaks — the FPI scaled an all-time-high of 237.7 in February 2011 — the underlying trend suggests that farm prices may have bottomed out.
“A correction was inevitable after a prolonged phase of low prices. We are probably seeing that happening, though a clearer picture will emerge from the next few auctions at Global Dairy Trade (an online marketplace of New Zealand’s milk products giant Fonterra)”, said R G Chandramogan, chairman of Hatsun Agro Product Ltd, India’s largest private dairy company.
In the latest fortnightly auction on August 2, skim milk powder prices averaged $1,965 per tonne, having traded at their lowest of $1,419 one year ago. The drop in prices, from a high of $5,142 per tonne in early April 2013, had led to India’s powder exports falling from Rs 2,717.56 crore in 2013-14 to Rs 292.57 crore in 2015-16. As dairies slashed procurement, farmers in states like Maharashtra were forced to sell cow milk at Rs 15-16 per litre — against Rs 25-26 when exports were booming — even amidst drought-induced fodder and water shortages.
But while milk powder prices may be just looking up, there is no such ambiguity with regard to sugar and cotton. Global sugar prices have almost doubled in the last one year. With ex-factory rates in Uttar Pradesh, too, firming up from under Rs 23 to about Rs 36 per kg, the pressure for hiking cane prices for growers ahead of next year’s Assembly elections would be obvious.
The outlook for cotton prices has similarly brightened after a global slump, reducing India’s exports of the nature fibre from $3.64 billion in 2013-14 to $1.94 billion in 2015-16. The accompanying decline in domestic realisations for “kapas” (raw, un-ginned cotton), from Rs 5,000-5,500 to Rs 4,000-4,200 per quintal, apparently had some role in the setbacks to the ruling BJP in Gujarat’s district and taluka panchayat polls last November.
But that has changed significantly. In the past three months alone, international cotton prices have surged from around 69 cents to over 81 cents per pound. The US Department of Agriculture on Friday forecast global ending stocks for 2016-17 at 89.61 million bales, the lowest since 2011-12 when prices were really on fire.
“We can expect kapas realisations to be better than last year,” said Dhiren N Sheth, president, Cotton Association of India. That would be great news, especially for Maharashtra’s farmers who have sown more area under cotton this time. Having endured back-to-back droughts, a combination of increased production, courtesy copious monsoon rains, and higher prices couldn’t have come at a better time.
Neelkanth Mishra, India equity strategist for the Swiss investment banker Credit Suisse, estimates that the country’s gross value of crops and livestock production — farm incomes, in other words – registered an average annual growth of 13.9 per cent from 2004-05 and 2013-14. The contribution of global prices to this can be seen from overall agricultural exports, which soared from $7.53 billion in 2003-04 to $43.25 billion in 2013-14.
The subsequent two years, however, witnessed the end of the global commodity boom. As prices collapsed, so did the value of India’s agri-exports to $32.53 billion in 2015-16. Farm income growth also slid to 4.8 per cent in 2014-15 and 2.8 per cent in 2015-16, according to Mishra.
An example of what global prices can do is provided by rubber. In 2011-12, average prices of benchmark RSS-4 grade sheets were Rs 208.50 per kg in Kottayam, Kerala. On a production of 903,700 tonnes, the value of this rubber would have been roughly Rs 18,842 crore. But in 2015-16, the average price was Rs 113.06/kg, a level uneconomical for many growers. As they discontinued tapping, production fell to 562,000 tonnes and that was worth just Rs 6,354 crore — a third of what growers grossed in 2011-12.
But like in other farm commodities, a mild revival of fortunes is now visible even in rubber. RSS-4 prices in Kottayam have climbed to Rs 142/kg, up from Rs 117.50 at this time last year. If replicated across other crops in a good monsoon year, there can be nothing better for the economy and, perhaps, for the NDA government as the next election season approaches.