Farmers to earn 9% profit over lower kharif, higher rabi output: CRISIL

Farmers are likely to generate 7-9 per cent more in profit during the crop year 2019-20 (July-June) because of an increase in overall prices of farm commodities on lower kharif yield and higher productivity from rabi crops, according to a study from ratings agency CRISIL.
 

In 2018-19, farmers had generated 26 per cent higher profit year-on-year over the low base of the preceding year, 2017-18. The latter saw per-hectare profit decline due to low wholesale (mandi) prices following a bumper crop.

“Unprecedented heavy rainfall in September-October would lower kharif crop production by 4 to 6 per cent year-on-year. On the other hand, a 10 per cent above-normal monsoon has filled reservoirs to the brim, which in turn promises to elevate rabi crop productivity and lead to seven-eight per cent higher output. 

While lower market supply of kharif foodgrain will push up mandi prices by over 10 per cent, a higher minimum support price (MSP) and government support for wheat (over half of rabi output) is expected to aid price growth for rabi, leading to an expansion in the overall per-hectare farm profitability in crop year 2019-20,” said Hetal Gandhi, Director at CRISIL.

The southwest monsoon was 28 per cent below normal as of end-June and nine per cent below normal at end —July 30, leading to delayed kharif sowing. However, quick catch-up in August and September resulted in a 10 per cent above-normal monsoon for the season between June 1 and September 30.

Though sowing gained pace in response to the monsoon’s progress, many parts of the country — including Punjab, Haryana, Uttar Pradesh and West Bengal —continued to be dry. 

On the other hand, Maharashtra, Madhya Pradesh, Karnataka, Kerala, Andhra, Rajasthan and Odisha had crop damage due to excess rain and floods.

“Overall, the kharif crop output is expected to be four to six per cent lower year-on-year. Thus, shortage in market supplies is expected to keep mandi prices firm – indeed, mandi prices have already shown an upward trend in the past few quarters – leading to higher kharif profits per hectare,” said Gandhi.

Among crop segments, prices of pulses and oilseeds have shown an increase of 23 per cent and eight per cent, respectively, from the third quarter of 2018 to the fourth quarter of 2019 (the comparison period is odd because of delayed mandi arrivals in 2019).

Prices for cash crops have softened by around 5 per cent, led by a decline in cotton because of an expected increase in output. 

Average prices of cereals and coarse cereals inched up 13 per cent because of an 11 per cent increase in paddy prices supported by higher MSP, and a 25 per cent increase in weighted average prices of coarse grain because of high domestic demand.