Onion prices: Higher wholesale prices, strong reservoir levels to help farmers in FY20

MUMBAI: Higher wholesale prices for kharif crops and a likely bumper harvest will spell gains for farmers in the crop year 2019-20, a report by Crisil research said. The rating agency expects overall farm profits per hectare to grow at 7-9% on-year in 2019-20 based on its analysis of 15 key minimum support price (MSP)-linked crops on parameters such as crop productivity, output, international and domestic demand-supply scenario, share of government procurement and exports, farm gate prices, and evolving cost dynamics indicates.

Though an unprecedented heavy rainfall in September-October adversely impacted kharif production by 4-6%, the above normal monsoon has filled reservoirs and increased chances of a bumper rabi or winter crop production. “While lower market supply of kharif foodgrains will push up mandi prices by over 10%,higher MSP and government support for wheat(which accounts for over 50% of the rabi crop 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,” Crisil Research said.

In a separate report brokerage company Motilal Oswal said that real rural wages declined 1.5% in the first half of fiscal 2020, marking its first decline in 13 years. However, the entire decline in real wages can be attributed to higher inflation which is beneficial for farmers.

“In contrast to the broad economic dynamics, higher inflation is benevolent to the farmer community, as it is a reflection of the higher prices fetched for their output. Not only retail food prices, but wholesale food prices have also increased at 6-year highest pace in the first eight months of FY20,” Motilal said in a research report.

Wholesale farm output prices have increased 7.3% in April-November 2019 while farm input prices have declined slightly so far this fiscal, implying better profitability for the farm sector this year after two years (FY18 and FY19) of declining margins, Motilal said.

The central government’s spending on the rural sector has increased 21% in the first seven months of fiscal 2020, the fastest growth in 11 years. All these factors, the unusually strong water reservoir levels and pick-up in rabi crop sowing activity, are initial signs pointing toward the rural sector bottoming out, Motilal said.