The government is likely to increase the funding for the farm and rural sectors in the upcoming Budget. One of the beneficiaries could be Godrej Agrovet.
Balram Yadav, MD of the company said we have got into a situation in Indian agriculture that when we have a drought, we have a problem and now because of meltdown in global commodity prices, even when we have good monsoon there is a problem.
So, it is expect that government will focus on agriculture in the upcoming Budget and what they have done in past Budgets would continue, said Yadav.
There will be budgetary allocations into three critical areas of agriculture -- rural insurance, irrigation projects and eNAM.
There could also be some short-term relief given through increased MSPs and price-deficit scheme that certain states are running, said Yadav.
National Agriculture Market (eNAM) is a pan-India electronic trading portal which networks the existing APMC mandis to create a unified national market for agricultural commodities.
When asked, what were the problems related to the company's animal feed business as the revenue contribution from that segment had fallen, the growth was weak, Yadav said, low commodity prices also reflected in their animal feed business. He said there has been high single-digit volume growth for the business but low commodity prices have impacted them and the value is down 10 percent.
However, he said the animal agriculture has done better than the pure agri sector, which has reflected positively in the milk and chicken business of the company.
Moreover, Godrej Agrovet is a hedged business, so even if some part of agriculture does well, the company will benefit from that, said Yadav.
According to him, e-NAM is the biggest initiative which will create a national market place. Going forward, it is expected that government will accelerate that and more fund allocations could happen in coming Budgets
Below is the verbatim transcript of the interview.
Latha: What is your sense given the kind of rural verdict one got from certain areas in Gujarat as well as all these farmers agitations in Delhi this time around it could be a big farm focus Budget?
A: To tell you, I think we have got into a situation in Indian agriculture, when we have drought we have a problem, and now because of global commodity prices meltdown even if we have a good monsoon we have a problem. So, we expect that the government will continue to put focus on agriculture, what they have done in past few Budgets with continue.
There will be some allocations allocated to rural insurance, eNAM and the irrigation projects, these are three critical areas where we will see lot of focus. Apart from that there will be some short-term relief given through improved minimum support price (MSPs) and price deficit schemes which certain states are running.
Sonia: Are these the reasons why the sector as a whole has not done that well over the last many weeks and months because you know if you look at animal feed which is a greater part of your business the revenue contribution has fallen, the revenue growth is less than what we have seen in the earlier quarters, what seems to be the price problem there?
A: I think the problem in rural India and particularly the agriculture sector is low commodity prices which has also reflected in our animal feed performance. If you drill through the numbers you will see that we have had a volume growth in animal feeds in past eight months, but unfortunately there is no revenue growth because commodity prices are lower than last year.
This is a unique situation which I have not seen in past several decades also when our volume has grown in high single digit percentage and our value is down 10 percent over last year. It is largely because of low commodity prices. Look at Soybean meal, look at corn, look at De-oiled rice bran all the ingredients we use they are 15-17 percent lower than last year.
Latha: Your other three areas, the non-animal feed area, crop protection, palm oil and dairy have shown higher revenues, is that selective or is that there the volume has done better than the price disadvantage?
A: Animal agriculture sector has done much better than the pure agriculture sector. The chicken, the egg prices, you know the egg prices have been the highest ever in past one decade. The farmers have really benefited from them because the animal feed prices are low. Chicken prices are also very remunerative, milk is remunerative most of the states are giving subsidy on milk to keep the prices up. So, animal agriculture sector has done well and that is reflected in our milk business, in our chicken business.
As far as oil farm is concerned definitely prices were falling, but the government stepped in and imposed their 30 percent custom duty on imported palm oil. So, the prices have held at the original level. Incidentally, I just wanted to point out that the duty increase actually has been paid by Malaysian’s this time because the global prices kept on falling and we are at the same level we were before the duty increase. So, I think these three businesses have done well.
Godrej Agrovet is a hedged business that way, some part of the agriculture will do well and we will benefit from it.
Sonia: I just want to come back to that point you were making about lower commodity prices of corn and soybean meal etc. Do you expect the prices to fall further because they are a function of higher amount of supply and relative lower demand, do you think this will continue in the first part of the New Year?
A: We believe that market will move sideways as far as the commodities which we use are concerned. There will be range bound spikes which may happen because of some disturbances. Global commodity prices are going to remain low because whatever scare was there because of Argentina drought is gone it rained very well in past few days in Argentina. So, we believe the market will move sideways. It is good for the farmers in a way because the animal protein cost will be low and the prices will be high. So, our farmers will make more money.
Latha: Are the goods and services tax (GST) disruptions over?
A: In most of our businesses the GST was not applicable, it was applicable in our food businesses and our agro chemical business. I think we were very well prepared for that so we did not feel a pinch of that. The only difference I must tell you is that when we used to have value added tax (VAT) it was part of our net realisable value, but now GST is not part of that. So, when you see my numbers in agro chemicals you will see a 4-5 percent growth which on apple-to-apple basis should be 16-17 percent growth, but unfortunately GST post July will not be counted in our revenues.
Latha: One of the macro issues I wanted to ask you is that eNam working well, the national electronic marketing of agriculture?
A: It is a great initiative; wherever we have studied this about 450 plus markets have gone live. It has lot of problems, but wherever it is working the disinter-mediation costs are coming down by 25-30 percent. Buyer is getting cheaper, the seller is getting more money. So, I think that this initiative is the biggest initiative which will create a national market place. I believe that government will accelerate that and more and more funds will be allocated in coming Budgets on this.
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