The key risk to this forecast remains the rate of spread of Covid-19 in rural areas, which may adversely impact the harvest and the supply chain, pushing up retail food prices, it said.
“Since the lockdown began in late March, wholesale and retail food prices have diverged. In April-July, the average WPI (Wholesale Price Index) food inflation was 2.9%, while CPI food inflation was 9.8%. Farmers didn’t benefit from this divergence,” said DK Joshi, chief economist, Crisil.
Joshi was speaking at a webinar on the agricultural sector. “We expect CPI food (inflation) to decline for two reasons. High base effect of last fiscal will exert downward pressure in the second half of the current fiscal (CPI food inflation was 10.9% in the second half of 2019-20). Secondly, a bumper rabi harvest and good prospects for kharif crop will also help tamp down food inflation,” he said.
In the past, recession in agriculture has usually been the reason for recession in the economy, said Joshi, while now, for the first time, agriculture has been playing a supportive role. “Agriculture has punched more than its weight as it still employs more than half of the workforce, provides nutrition and food safety,” he said. “It has played a special role of being the beacon of hope. However, as the share of agriculture in the GDP (gross domestic product) has come down, it does not have the weight to offset the deep contraction in other sectors of the economy.”
However, the key risk to this forecast is a faster spread of Covid-19 afflictions in the hinterland. “If the afflictions don’t peak by end-September, there would be an adverse impact on harvesting and supply chains, which would push up retail food prices – and widen the wedge between retail and wholesale food prices,” said Joshi.
A detailed analysis of 25 key field and horticulture crops done by Crisil indicates that per hectare profitability will improve 3-5% year-on-year to Rs 10,000 in the kharif season 2020, based on C2 or the cost of production. Sugarcane and paddy continue to be the highest profit generating field crops due to government support while apple is expected to lead horticulture profitability.
1. Monsoon rainfall till date – 7% above normal
2. Kharif crop acreage – year-on-year increase of 2-3%
3. Kharif crop productivity – expected to increase 3% year-on-year
4. Surplus production to put downward pressure on 10 out of 14 field crops
5. Horticulture prices to decline due to excess production and muted demand
6. Among fruits, higher share of good quality apples and increase in prices to support profitability growth
7. Agriculture input industries (fertiliser, seeds and pesticides) expected to grow 2-3% year-on-year this fiscal
8. Labour shortage and higher mechanisation to support 5-7% growth of farm equipment