Maha worst hit by sudden rains, pros say Rabi stock ample

According to Yadav, initial estimates indicate that Maharashtra alone has Rs 2,500-3,000 cr worth of crop damage. "Maharsahstra is the worst impacted state in the country and the compensation announced can barely cover the losses," feels Yadav

Meanwhile, tractors, which are integral part of agriculture, is seeing suppressed sales for last two quarters. Tandon says the industry will be down by 25 percent this quarter and end the fiscal with a 13 percent year on year decline.

"Agricultural profitability is shrinking since last three years; the policy making circles need to wake up," Dr Gulati said while countering suggestion that fall in rural wage is somewhat arrested.

Below is the transcript of Ashok Gulati, Balram Yadav & Sameer Tandon’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: Access the damage for us and does this mean that we have to grapple with an increased fall in the rural demand a longer and deeper fall in rural demand? Gulati: The exact estimates of damage are still under assessment by the government. Whatever little we could gather from our own trips to the field it ranges widely from certain districts where a 20-25 percent damage is there, others is 5 percent, others is even 30 percent and so on and so forth depending upon crops and regions. Now we will have to divide this whole thing into two parts. One is the grain damage and that is the wheat of the rabi. There I would say although in some states the damage is more than others Punjab where we visited personally and drove about 400 kilometers into the farmer’s fields and others I was some what relieved the damage, you know when a farmer loses crop for him everything is gone. So the issue of how do we compensate that particular farmer is one big issue in the country because insurance has not taken off to the extent that we want. However the other issue at a larger level for the economy is what will happen to the basic staple prices. That is an issue, we also visited some of the silos and there is ample stock with the government. What government needs to do is be proactive in liquidating its stock. So whenever there is a damage or scarcity in the production side you need to liquidate your stocks. So that if the government wants it can keep the sale prices constant, inflation rate zero if they want it. It is all dependend on government. The problem is going to come up in vegetables, fruits and may be in pulses because that is where government is not active. For years reforms are being talked about to what sort of mandi system and what sort of reforms are needed and you need to build value chains, you need to invest there for storages and so on and so forth that has taken a back seat. The country is paying through its nose. Every time there is a little damage the spike in the price is much more. So you will see the vegetable prices although the Wholesale Price Index (WPI) data that has come for February you may say over all in minus 2.6 percent but if you look at food it is about 7 percent food articles and vegetable is 15 percent, fruit is 15 percent, pulses are 15 percent so where the poorer are going to be hit. Inflation rate are very high. I think the government has no strategy no plan on that to come down and do something on a sustainable basis.

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Sonia: What is the sense that you are getting about how much impact your own business could have because of one vegetable prices rising. Two, the lower rural wage growth and what is happening with the unseasonal rainfall? Yadav: I am with Dr Gulati because the impact is very severe in fruits and vegetables particularly potato in Uttar Pradesh (UP) and onions in Maharashtra. We also see lot of damage to mango, grapes as far as fruits are concerned. We will see lot of inflation in these areas. As far as our business is concerned we are not too much dependant on rabi in our agri input business. So what is most important for us is a very good monsoon. Coming to our animal agriculture business which is almost 2/3rd of our total business we are seeing farmers reeling under very low chicken, egg and milk prices. However, unfortunately you do not see that happening at the consumer level. The consumer prices still hold at a very high level and the trade margins are as high as 100 percent. So that is bothersome because once the volumes go down in production of chicken and egg our animal feed business will be directly hit. To talk about rural wages we see some kind of a moderation happening in rural wages. If you take calendar year 2013 rural wages rose from Rs 174 to Rs 231 which is almost 33 percent. In 2014 there was some Rs 232 to Rs 243 which is about 5 percent. We see a very moderate growth in last few months. Labour availability for agriculture has increased that is a positive.

Latha: Some economist was pointing out that this falling trend in the rise in rural wages has kind of bottomed out. November – December figures appear to indicate that now there is a minor uptake and picking up so this steep pace of fall has plateau is that your observation? Gulati: That is very clearly very much there in the graph in the economic survey which points out to what is happening to rural wages. What do you expect when for the last three years the agri gross domestic product (GDP) growth is going to be less than 2 percent per annum? So if farmer is not getting anything than how do you expect the rural wages to keep on going up. Also you look at the slow down in the overall construction sector in the economy because people who are migrating from rural areas they were going primarily to the construction sites and last two-three years the construction activity has slowed down and agriculture has not grown. The whole issue of rural wages having a bull run that phase is over. Latha: My question was the other way round has the fall began to trough out that was what one economist observed recently saying that whatever fall we saw in minimum support price (MSP) will perhaps now stabilise and may be in the coming year we could actually see it inching up. The worst of the fall is over is that your observation? Gulati: There is nothing bottomed out because the agriculture prices globally are fallen so whether you look at wheat, you look at corn, you look at cotton the farmers are getting a back water flow. So if their incomes dawn to go up how they are going to afford a higher wages for the farm workers because the portability is shrinking. I am worried that this is not just one year or last six months phenomenon. The slow down had started two years back. Last three years is where the farmers are at the receiving end. I think the policy making circles need to wake up.

Sonia: Mahindra & Mahindra (M&M) had an analyst meet yesterday where they said that tractor sales are worst than the most pessimistic scenario. Is that the state of affairs that Escorts as well and geography wise can you tell us where you are facing the biggest hit? Tandon: Tractor sales for last two quarters have been suppressed and as the other panelist on the discussion have already said that the farm incomes are under stress and that has led to a decrease. We were expecting to a tune of a about 20-22 percent type of a decline in the market. However the surprise was that in last two months it has been to the tune of about 30 percent as far as tractor industry is concerned. The trend should continue for this month as well. We expect that the industry should be down by almost about 25 percent or it could be little more. The year should end up at about 13 -14 percent type of a decline in the industry over the last year. See the sentiments are poor and we will continue to be poor with poor monsoon earlier than lesser sowing for the rabi crop and then in last few days they have been unseasonal rains. The good thing what we see as well is that the rural infrastructure development which had taken a very poor place in the last year or so we see that reviving up and we see a big use of our tractors and agri machinery which also gets used in the commercial purposes when you have infrastructure development start happening. We see that should start picking up. We expect that may be in a six months time or you can say from September-October of the next year we should start seeing some recovery which should happen on the tractor industry as well.

_PAGEBREAK_ Latha: Where is this improvement in rural infrastructure stemming from is it changed policies from the central government? Is it that we are getting finally a crop of good Chief Ministers as well? I mean we have Vasundhara Raje, we have Shivraj Chouhan and we have Gujarat which is still in fairly strong hands. Are you seeing state governments more active with irrigation and such projects? Do you suspect that the little extra money that has come because of the finance commission transfers to the state governments could get employed in rural infrastructure where is your confidence stemming from? Tandon: We have a little different perspective as well you see in the last two years if you leave off this financial year if you see the last two years the food inflation was very high and that was because of a global phenomena where the demand for commodities was higher and the price had gone up. It was a very big spike and I thought, always we thought in our company as well that-that pricing to maintain for commodity is going to be very tough and it should not be. So the prices came down but the prices today for the commodity as well which has taken away the sentiment from the market because a farmer who was making almost twice the money what he is making today when he loses it suddenly he is not very receptive about it and that is a challenge which we felt was. However, these prices today what he has are not very poor. They are better than what we used to have about 2-3 years back. We feel that with the income happening this bad weather has been a spoil sport if this year the crop was looking very good the rabi crops specifically wheat was looking very good. It would have been a bumper crop but there has been some damages, very difficult to assess at this point of time but with the experience I can tell you is that about 10 percent of the crop could be down overall. Some places it could be more, some places it could be less. Plus in the Budget if you see what has come in about so much on the priority loaning sector, the finance availability and also on the rural infrastructure all these things specifically if I look at the markets from Rajasthan to Madhya Pradesh, Uttar Pradesh which are very big market for us. We will start seeing much faster revival may be 6-8 months time.

Latha: How is the government intervention in the cereal front was last kharif which was actually bad. We had a sub par monsoon are you confident that the cereal intervention by the government will be good. Therefore how are you looking at CPI? Do you think cereal CPI does not go up? Veggie CPI might go up but we may not see a generalised inflation like we saw 2-3 years ago? Gulati: Kharif was down and cereal production likely to be down by 10 million tonne from the kharif side and the Prime Minister took a decision about 7-8 months back to liquidate 15 million tonne of grains from its kitty of Food Corporation of India (FCI) -10 million tonne of wheat and 5 million tonne of rice. Unfortunately the system could not unload more than 3 million tonne. Despite that the cereal inflation is hovering around 2 percent to one point something. Now if rabi is also damaged whether by 5 percent or 10 percent we have ample stocks so if the cereal prices go up there will be more pressure on the government to release and they need to expedite their unloading in to the open market. So I am not too worried on that account it can be contained because we are over loaded with stocks with 100 percent more what we need. So in a way it will be a blessing in disguise to liquidate those stocks.

Sonia: Sameer Tandon was just pointing out what the tractor industry needs and is getting from the government. For you own industry what is required from the government’s end in order to speed up the growth process and how long do you think it would take for the industry to see a revival? Yadav: Our industry is no different from the rest of the agriculture. The framer is very vulnerable, you can imagine how vulnerable he is because he gets paid twice. If there is a monsoon failure then he does not get paid once. So, that is the vulnerability of framer the policy has to be sustainable so that he is de-risk. One of the big drawbacks of the agriculture is that it is a state subject that is why we see differential development of agriculture in different states depending on the kind of policy they have, the kind of focus they have on agri infrastructure. So the situation is grave according to me. Two things which can save Indian farmer is one is policy initiative and second is monsoon. Unfortunately 65 years after independence also we will again look up at this guy and hope for the best. Sonia: There is some talk that the cash compensations are being giving out by states Chief Minister to farmers. Is there any truth to that and what could the quantum be which are the states where cash compensation has been given out? Yadav: One of the worst hit states has been Maharashtra and the Chief Minister has announced a compensation of Rs 200 crore. I am very sure the kind of preliminary estimates that people have made the losses will be in excess of Rs 2,500-3,000 crore so it is hardly anything for the farmer. We will see for more misery in the agri sector in times to come incase the monsoon plays truant.