Farm income expected to rise after good rabi season and higher crop prices

• As per the second advance estimates released by the government for 2023, rabi foodgrain and oilseeds output is projected to reach a record high.
• “With higher overall foodgrain production, we expect farmers’ income to remain solid,” said a report by Nuvama Institutional Equities.
• The market prices of some rabi crops and others are even higher than the government minimum support price (MSP).
• Adding to higher crop prices, even prices of fertiliser have continued to decline driven by easing raw material prices.
  

A record high production in rabi foodgrain in 2023 and high crop prices are expected to boost the income of farmers, says a report by Nuvama Institutional Equities. Also, this would be the fourth consecutive year of increase in rabi foodgrain production.

As per the second advance estimates released by the government for 2023, rabi foodgrain and oilseeds output is projected to reach a record high.

Rabi foodgrain output is estimated at 170.1 million tonnes (MT), which is 6.2% higher from previous year. Output of rabi oilseeds is estimated to increase by 4.6% with record-high production at 14.6 million tonnes.

“With higher overall foodgrain production, we expect farmers’ income to remain solid,” said the report.

According to Nuvama, India is likely to witness a 2.5% higher food grain production during 2022-23. Key rabi crop prices like wheat are up by 20% on year and by 6% in the last 3 months.

“However, the government is targeting aggressive procurement of wheat in the season, which may keep prices intact and boost farmers’ cash flows. Also, as reservoir level remains above the ten-year average (all-India level) farmers entering into kharif season with solid cash flows create a conducive environment for the agri-input industry,” said the report.

High crop prices to benefit farmers
Prices of wheat (up 20%), paddy (up 18%), and maize (up 19%) have remained strong on a yearly basis while soyabean, cotton (down 8%) and pulses (tur dal down by 8%) remain weak.

On the bright side, the market prices of some rabi crops and others are even higher than the government minimum support price (MSP).

Market price remains higher than MSP for rabi crops
Source: Nuvama Research

Adding to the higher market prices of many rabi crops, even prices of fertilisers have continued to decline driven by easing raw material prices.

“Though overall fertiliser prices remain firm on a year-on-year basis. We expect moderation in fertiliser prices to benefit companies with lower working capital and also benefiting the government in reducing its subsidy bills. Softening raw material prices may also support margin expansion in NPK fertiliser in near term. However, we expect fertiliser prices to farmers are unlikely to witness any significant changes,” says Nuvama.

NPK fertilisers contain nitrogen (N), phosphorus (P) and potassium (K).

Monsoon fear looms
While the monsoon is still about three months away, there are concerns about El Nino impacting production and thereby food inflation.

El Nino is a climate pattern in the Pacific Ocean that influences climate conditions and creates a deficient monsoon.

The Nuvama analysts said that while they were confident about robust rabi crop output boosting farmers’ cash flows and driving investment in kharif crop, they were concerned about a poor monsoon.

“Weather agencies have indicated the occurrence of El Nino in 2023 that could result in a lower- than-average monsoon. Our interaction with dealers indicates that companies are focused on collections and offering attractive discounts as lower crop output liquidation by farmers poses a challenging scenario,” said the report.

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