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Home / Industry / Agriculture /  Rural demand looks for a comeback in the second half

NEW DELHI : Rural demand may rebound in the second half of this fiscal year as bountiful monsoon rain, high food prices and a spike in remittances from migrant workers before the festival season boost incomes, companies and analysts said.

“We have started seeing early signs of revival," said Mayank Shah, senior product category manager at biscuit maker Parle Products. “Hopefully, with good monsoon predicted this year and higher realization price of crops like wheat, we expect good demand from the September quarter."

A rise in incomes of farmers and rural households is good news for packaged goods companies, appliance makers, and two-wheeler and tractor manufacturers, which have seen demand drop as price hikes to offset inflationary pressures resulted in a sharp cutback in consumption. Many companies effected several rounds of price increases since the Russian invasion of Ukraine in February led to soaring energy and raw material costs.

“The last three months were difficult. However, we hope demand will come back in the festival quarter as migrant workers return to villages and government schemes become active," said Ajay Sharma, business head of appliances maker Usha International. Besides sewing machines and fans, Sharma said the company’s mixer grinders, irons and cooktops see robust demand in India’s villages.

Rural markets reported a 5.3% decline in sales volume in the March quarter, the steepest in the past nine months, while urban volumes dipped by 3.2%, market researcher Nielsen IQ said in its March quarter update on the packaged consumer goods sector. NielsenIQ pointed to sharp price increases on packaged goods leading to a steep consumption decline in the countryside.

Usha’s Sharma said the company saw a marginal demand slowdown in the appliances category, but many people opted for cheaper products in rural markets. Most consumer goods firms also flagged a slowdown in their March quarter earnings.

Analysts at Edelweiss Securities said rural demand would start improving from the December quarter.

“In our view, the (rural) slowdown will persist well into the fiscal first half, stemming predominantly from unprecedented inflation, compelling steep price hikes from fast-moving consumer goods companies, and consumers prioritizing savings over spending, given the all-round inflation. We believe the second half of the fiscal year is when green shoots will begin appearing," they said.

Edelweiss said several factors could help lift rural demand, which accounted for over a third of sales for fast-moving consumer goods companies.

“High global food prices could help farm incomes, while improved mobility and labour returning to urban areas will improve the remittance flow to rural a areas," they said in a note to clients this week.

The weather department’s prediction of a normal monsoon this year is expected to boost crop output and increase farmers’ earnings.

In a call with investors after reporting its March quarter earnings, Hindustan Unilever Ltd’s managing director Sanjiv Mehta said normal rainfall could lift rural demand.

“We are seeing that the rabi (winter crop) harvest should be good from all counts. The second indicator is that the (monsoon) rainfall should be decent. The third is that with agri prices moving up, there would be a benefit to the farmers. We need to assess whether that will get neutralized by input price increases or if there would be a net benefit to the farmers. If it is a net benefit to farmers, it would be fabulous because we are seeing that the government procurement has been much lower because farmers are selling it in the open market," Mehta said.

Analysts said higher food prices could augment rural income as agriculture is a globally tradable commodity, and India generates a surplus in agriculture.

Dabur India’s chief executive officer Mohit Malhotra said things could look up in the next six months.

“The prediction of the monsoon is good. Even the harvest is going to be good. Plus, farmers are getting a better price per wheat as it gets exported. So, I think the rural economy will turn around. Of course, there is an immediate pressure that we see near term. But over six months, rural should recover. And that should help Dabur also," Malhotra said in a post-earnings call with investors last month.

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