Agri Outlook Feb 2020

The second advance estimates of agricultural production present a very positive picture for the sector for FY20 which should also feed into the GDP growth numbers for the year.
Agri Outlook Feb 2020

The second advance estimates of agricultural production present a very positive picture for the sector for FY20 which should also feed into the GDP growth numbers for the year. The estimates point to higher production for most of the product groups – both kharif and rabi. Foodgrains production, which includes cereals and pulses, would reach an all-time high of 292 million tonnes (MT).

As these crops, along with horticulture, account for around 56% of GVA in the agriculture sector, there should be an upward push for growth numbers for the year. With the exception of moong, urad, sugarcane, jute and mustard, production of all other crops is expected to be higher this year.

As per the estimates, production for rice and wheat will go up by 0.9% and 2.5% in 2019-20 compared to 2018-19. Jowar (with production growth rate of 25.9%), Groundnut (with 22.6%) and Cotton (with 24.4%) will see a big jump in their production numbers. On the other hand, production of Urad is likely to witness a steep fall of 26.5% in 2019-20.

The rabi sowing data so far has been positive with total area under cultivation being 662 lakh hectares (LH) as against 605 LH last year as on January 31, 2020. In case of all the three major crops wheat, chana and mustard area under cultivation has been very satisfactory with that of wheat being higher by over 30 LH. 

An interesting aspect of the farm production numbers expected is that notwithstanding a very good harvest in these crops WPI inflation has tended to be high for several products. In case of urad and moong inflation has been high and corresponds to lower expected production this year. Price inflation for chana has been negative this year so far which corresponds with higher expected production.

The price inflation for products in the pulses basket has been mixed. In case of tur inflation was high even though production was higher and can be attributed to higher demand conditions. Also, while production has increased by 11.1% this year to 3.69 MT, the production levels are still substantially lower than 4.87 MT and 4.29 MT respectively in 2016-17 and 2917-18. In 2018-19 production had fallen sharply by around 23%. Therefore, carryover stock has also been lower which added to supply shortfalls in the current year.

Agricultural production is a very important aspect of the economy as it has a direct contribution of around 8% to aggregate GVA (excluding livestock and forestry). The share of agri related products in IIP is around 11-12%. Further, farmers’ income is a critical part of rural spending that is said to contribute to demand post kharif harvest which carries on till January and resumes again in March –May when the rabi crop is harvested. Therefore, price received is also important along with overall production as they determine the income of farmers. However high food inflation impacts farmers’ consumption of discretionary goods and while they could receive higher prices for their product like say rice and wheat, could also be paying higher prices for other food items like pulses.  

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