Good monsoon could boost farm profitability by 12%: Report

Low MSP growth in the past three years also likely to reverse, profitability of farmers to increase, says JM Financial report

Despite four weak crop cycles in the past including Rabi 2016 and low MSP hikes, projections of a good monsoon are likely to increase profitability of farmers this year, says a report on rural economy trend by JM Financial Institutional Securities Limited.

According to the report, minimum support price (MSP) growth in the past three years has been weak, which is likely to reverse this monsoon. Profit per acre is expected to increase by 10-12%.

“Farm income profitability has struggled in the last 3 years due to low MSP hikes, low productivity and high costs (high labor cost growth). With the parameters expected to reverse in upcoming monsoon season, profitability is set to increase sharply. We expect profitability to bounce back as profit per acre would increase by 10-12 per cent,” said the report.

Even though the past four crops including Rabi 2016 have been weak, a good monsoon would increase farm income on the back of improved productivity and probable higher net sown area, as per the report.

Many international meteorological departments are also predicting onset of La Nina by September and global agri commodity prices usually increases during La Nina periods. Rise in global agri prices would also help farm income.

The company conducted a survey in 14 districts of 8 states that account for 52 per cent of India’s agriculture GDP for the report. Company analysts met large and small farmers, small business owners, FMCG dealers, auto dealers, bank managers, small shop and service owners among others to understand how rural demand has been impacted by the crop failures during last two years, what are the key concerns of rural population and what is their spending outlook.

Lack of irrigation coverage has meant a significant correction between crop yield and monsoon rainfall, the report found.

“There is significant correlation of crop yield with monsoon rainfall, as still over 50 per cent of Indian agriculture does not have irrigation coverage and thereby depends only on rainfall. Yields for most of the crops are strongly correlated with monsoon; hence good monsoon would aid in yield growth after two years of consecutive decline,” it stated.

Most international met departments are predicting an end to El Nino and return to neutral levels by end of May. The Oceanic Nino Index tracking the progress of climate has declined in January post continuous rise to maximum value.

The decline indicates the possibility of El Nino ending soon. Various international met departments have indicated the possibility of formation of a La Nina by September.

“Historically, during La Nina periods commodity prices increase due to reduction in production owing to heavy rains; any increase in agri commodity prices going forward would aid farm income. Hence, the weather turning to La Nina might help agri commodity prices to rise,” the report concluded.