Home >Markets >Mark To Market >Favourable climate for rabi season brightens outlook for agri firms

Abundant rain and high reservoir levels have created favourable conditions for the winter or rabi crop season, reviving demand for farm inputs such as agrochemicals and fertilizers.

As of last week, reservoirs were 82% full—the best reading in recent years. More than half of the 120 important reservoirs monitored by the Central Water Commission have water levels exceeding 80% of their storage capacity. This is brightening the outlook for winter crops, which are mostly river fed. Data from the agriculture ministry showed that crop sowing is 6.4% more than the year-ago levels.

Channel checks by Antique Stock Broking Ltd showed a 15-20% year-on-year growth in sales for most agrochemical companies in October-November this year. Fertilizer industry sales volume is also up 20% during the period with key crop nutrients such as urea and DAP (diammonium phosphate) seeing good growth, data compiled by IIFL Securities Ltd show.

The sales growth is aided by a favourable base and delay in summer crop (kharif) season. “Rabi last year was a very poor season due to unfavourable climatic conditions," said Abhijit R. Akella, vice president, IIFL Securities.

A prolonged summer crop this year has also pushed sales of some agrochemicals and fertilizers to October. Even then, there is no denying that farmers are more optimistic about the current crop season.

“Despite the crop damage suffered during kharif (summer crop), farmers have borrowed money from the trade channels and invested in rabi crop. This is helping the fertilizer and agrochemical companies," said Akella.

Interaction with stakeholders such as farmers and farm input sellers, ratify this scenario.

Analysts’ interactions with farmers at a large agriculture show in Pune, Maharashtra this month suggested upbeat sentiments.

“There is definitely lot more optimism on the rabi output. High moisture content in the soil significantly expanded the scope for rabi crop sowing," said Arshad Perwez, vice president, JM Financial Institutional Securities Ltd.

What also supports farmer sentiments are the firm agriculture produce prices.

Barring cotton, prices of most agriculture commodities are trading higher than last year. Higher prices boost realizations driving farm investments. “Sustained high agri-commodity prices are helping the farmers. Despite the arrival of kharif crop at mandis, agri-commodity prices continue to remain firm. Further selected global crops saw spike in prices. This bodes well for the agri-driven rural ecosystem," said Perwez.

“In these circumstances farmers’ first priority is to invest in agriculture inputs related products."

Therefore, it is not surprising that companies are optimistic about business prospects. Major agriculture inputs sellers-Rallis India Ltd, UPL Ltd, Dhanuka Agritech Ltd-allude to better sales in second half of the fiscal year.

UPL, which saw a 1% revenue contraction in India in the fiscal first half, expects growth to rebound in the second half.

Rallis expects limited gains but reaffirms demand recovery in the current crop season. “Together with good monsoon this year, the water availability for rabi crops should remain positive, which may help in achieving targeted yield," said Rajesh Aggarwal, managing director, Insecticides India Ltd.

To recap, farmers had curtailed spending on agriculture inputs due to crop damages from untimely and excess rains in first half of this fiscal. This impacted sales of most agrochemical companies, pulling down the industry growth to low single digits in the kharif season. Against this backdrop, the current improvement in demand will provide a reprieve for farm input providers.

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