Better price discovery of Agri produce & more investment in rural India likely to drive incomes of farmers upwards
We hosted Mr. Balram Yadav, Managing Director - Godrej Agrovet to discuss about the Agri sector, new farm bills and the tectonic shift in Indian Agri sector. Five takeaways: (1) Agri GDP will not be impacted in FY21 considering normal monsoon, better sowing and possibility of higher Kharif production. Up-fronting of NREGA payments is also helping the Agri economy, (2) While poultry and milk demand /prices were impacted post covid, there is increase in demand now. Further opening up of economy will also lead to better demand, (3) New farm bills will help to create free pricing and the farmers can benefit. There will be higher focus on quality of Agri produce, (4) The investments in rural India (warehousing, cold chain etc) will go up. Aggregator models will also emerge and (5) New opportunities such as Agri exports, higher investments in Agri production, improvement in quality of fruits/vegetables will emerge. We have BUY rating on UPL, Sumitomo, Insecticides and Kaveri Seeds. We rate Avanti as ADD and Godrej Agrovet as HOLD.
* Current Agri situation: With normal monsoon and better sowing, there is possibility of bumper kharif crop in CY20. The Rabi crop was also good in FY20. Two good Agri seasons indicate healthy income levels for farmers. There is possibility of good production of rice. However, there were some issues in cultivation of crops such as soybean, onion.
* Expect Agri GDP growth to remain healthy: Considering the investments in Agri sector and good Agri seasons, the Agri GDP growth is expected to be healthy in FY21. Some labour has migrated back to cities and remaining laborers are expected to be back in cities post Diwali. Free distribution of food to almost 800mn Indians has also helped to reduce any material impact on the economy. Up-fronting of NREGA payments has also helped the Agri sector.
* Impact on poultry segment: Consumption of chicken and eggs was severely impacted post lockdown. Also closure of HoReCa added to woes of Poultry segment. However, there is increase in chicken/ egg prices and the consumption is on recovery path. Gradual opening up of the economy will lead to further improvement.
* Impact on milk segment: Almost 30% of milk is consumed by institutions and it was impacted post covid. However, there is gradual recovery now. Lower investments in cattle feed and cow rearing activities impacted milk production and now there is negligible mismatch in milk production and consumption.
* The new farm bills: New farm bills will create a free market. The farmers will be able to sell their Agri produce anywhere in India. There will be free pricing and the ‘culture of managing prices’ of Agri produce will reduce. This will help multiple parties in value chain such as farmers and consumers.
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