Monsoon and agri-input stocks

Seeds, fertilisers and insecticide stocks have rallied on the back of good monsoons

Agriculture accounts for barely a sixth of the GDP and its share is gradually falling. But that does not make the farm sector any less important. According to Census 2011, 54.6 per cent of the country’s population is dependent on agriculture and allied activities for income generation.

Monsoon rainfall has a considerable bearing on the country’s food-grain production. About two-thirds of the cultivable land is without irrigation and depends on monsoons for the crops to grow.

Historically, the monsoon and food-grain production have had strong linkages. In 2009, when the South-West monsoon rainfall was 21.8 per cent below the long-term average, food-grain production slipped 7 per cent. Likewise, in 2014 and 2015 when India had two consecutive years of deficient monsoon rains – 12 and 14 per cent below the long-term average the total food grain production declined by 4.7 per cent and 3 per cent respectively. And when it rains adequately, agricultural production is also bountiful. In 2016-17 food-grain production climbed to a record level of 273.78 million tonnes, following good monsoon rainfall in 2016.

However, the effect of monsoons on the usage of agri inputs — say, seeds or fertilisers — have been different. A weak monsoon has not always resulted in lower sales of agri inputs, suggests data from Department of Agriculture, Cooperation and Farmers Welfare, Government of India.

Seeds

The sales of seeds (especially premium and high-yielding varieties) in India have reacted with a lag to the changes in the South-West monsoon patterns. For instance, in a drought year — 2009 — seed distribution rose 19 per cent. Similarly, in 2012-13 when the South West monsoon rainfall was 7.5 per cent below normal, the distribution of certified seed grew by 6.3 per cent. So also in 2014 and 2015, when there were two consecutive spells of below normal rainfall, seed distribution remained steady and grew marginally by 0.6 per cent and 0.3 per cent respectively.

This to some extent, could be expected. After all, seeds are the first input in the agricultural process and seed purchases happen ahead of the monsoon onset. And purchase of premium and high-yielding variety seeds is largely dependent on the previous year’s farm income which, in turn, is a function of the rainfall volume in that year. The performance of the Indian arm of global seed major Monsanto is a case in point. While Monsanto India managed to grow revenue in years when rainfall was deficient — 2009-10, 2012-13 and 2013-14, the revenue in subsequent years took a beating.

Fertilisers

In the case of fertilisers, the huge price subsidy by the Government has cushioned the farmers from the perils of a bad monsoon.

The subsidy ranges between 40 and 70 per cent depending on the fertiliser type and other factors .

That said, within the fertiliser segment, sale of urea, the base fertiliser, tends to be more stable thanks to higher subsidy compared with complex fertilisers.



Interestingly, pesticides, the last input in the order of usage, have a strong correlation with rains. For instance, in years of deficient monsoon, the consumption of pesticide has fallen too. In 2009-10, pesticide sales dropped by 4.7 per cent.

Similarly, in 2012-13, 2014-15 and 2015-16, sales dropped by 13.9 per cent, 6.9 per cent and 10.2 per cent respectively.

This is because a weak monsoon and crop loss due to scanty rainfall impact farm income and, therefore, the demand for pesticides. Moreover, pesticide purchase is directly related to pest incidence.

While overall pesticide sales declined sharply during weak monsoon years, the revenue for select pesticide players remained steady even during such years.

For instance, Insecticides India’s revenues have consistently grown over the last 13 years.

Stock rally

After weak monsoon spells for two consecutive years in 2014 and 2015, agri-input stocks are back in focus over the last year. Near-normal monsoon rainfall last year and this year has been a big sentiment booster.

Stocks of fertiliser makers Chambal Fertilisers, GSFC, GNFC, National Fertilisers and Rashtriya Chemicals and Fertilisers (RCF) have more than doubled over the past year. Among seed makers Kaveri Seed Company Limited (67 per cent) and in the agrochemicals segment Insecticides India (83 per cent) have been the big gainers.

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