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Food grain production in India to touch record high in FY11
According to the Government of India’s recently released third advance estimates,
India’s food grain production is likely to touch a new record in FY11, rising by an
estimated 8% to 236mn tonnes. Production of wheat, pulses, oilseeds and cotton
is expected to touch a record high in FY11. Increasing production of foodgrains
remains critical to India where rising rural prosperity (particularly at the bottom of
the pyramid) has resulted in surging demand for foodgrains.
Higher agricultural production to add further momentum to rising rural
prosperity
Rural income in India is likely to witness a meaningful jump in FY11 driven by the
sharper-than-anticipated growth in agricultural production, coupled with a
continuing – albeit modest- increase in minimum support prices (MSPs which have
risen at an average of ~5%). We estimate that minimum support prices of food
grains have risen at a CAGR of 10% since UPA-1 came to power in FY05 – which
is 400bps higher than the average inflation during the same period. Income from
crops under MSP regime is likely to show a 17% yoy rise in FY11, which would be
among the highest in the past 6-7 years - despite the fact that the government has
not raised support prices materially in FY11.
Rural prosperity has also been fuelled by the National Rural Employment
Guarantee Scheme
Landless laborers have also benefited from the government’s National Rural
Employment Guarantee Scheme and a successive increase in minimum wages
across different states. In most of the populous states minimum wages under
NREGS have risen at a rate much higher than the average inflation during FY07-10.
The state of Maharashtra has witnessed the maximum growth of 39% CAGR
(FY07-10) followed by Gujarat and Orissa at 35% and 31%, respectively. On the
other hand, we attribute India’s sticky food inflation to higher rural prosperity
High likelihood of normal Indian monsoon in 2011
Based on meteorological trends and other weather factors, the prospects of a
normal Indian monsoon appear to be high. Any positive forecast on the Indian
monsoon is likely to be seen positively by the market given elevated food inflation.
According to DB’s meteorologist, La Nina conditions are expected to persist
through the summer and early fall of 2011. Empirically we have observed that
such La Nina conditions are generally conducive to a good monsoon.
Key beneficiaries: M&M, Bajaj Auto, ITC, United Phosphorous, SBI, Shriram
Transport, PNB,
Higher agri-income, coupled with continued focus of government to stimulate rural
India, should, in our view, lead to continuing consumption demand from the rural
economy and benefit the following companies: M&M, Bajaj Auto, ITC, United
Phosphorous, and as a derivative SBI, Shriram Transport Finance and PNB.
Rural prosperity set to
continue
Food grain production in India to touch record high in FY11
According to the Government of India’s recently released third advance estimates, India’s
food grain production is likely to touch a new record in FY11, rising by an estimated 8% to
236mn tonnes. Production of food grains – which form the biggest chunk of food items in
India - had declined in FY10 after the previous record high touched in FY09. Production of
wheat, pulses, oilseeds and cotton is likely to touch a record high in FY11. While production
of rice has risen on an annual basis, it remains below the record high seen in FY09. The sharp
increase in food grain production, particularly pulses, should assuage concerns on food
inflation, though we concede that the sharpest increase in food inflation have come more
from protein-linked foods – eggs, milk and fish – than food grains.
Increasing production of foodgrains remains critical to India, where rising rural prosperity
(particularly at the bottom of the pyramid) has resulted in surging demand for foodgrains.
Higher prosperity has resulted in shifting diet patterns with the poorest of the poor shifting
their staple diet from coarse cereals to foodgrains.
The robust growth in production is primarily attributable to the resilience of India’s rural
economy, percolation of new farming techniques and continuing budgetary support of the
government. There has been a sharp increase in investments in agriculture with the
agriculture Gross Capital Formation (GCF) rising to 20.3% in FY10 vs. 13.4% in FY05. In
addition, the agriculture GCF as % of total GCF has also risen from 2.5% in FY05 to 3% in
FY10. This has manifested itself in the form of greater farm mechanization leading to higher
usage of efficiency-enhancing farm implements like drip/micro irrigation, and tractors.
Higher agricultural production to add further momentum to
rising rural prosperity
Rural income in India is likely to witness a meaningful rise in FY11 driven by the sharper-thananticipated
growth in agricultural production coupled with a continuing – albeit modestincrease
in minimum support prices (MSPs – the minimum price which government pays to
farmers for few key crops). Minimum support prices for foodgrains have risen this year at an
average of 5.7%, which though modest is still up yoy. We estimate that the minimum
support prices of foodgrains have now been raised by a CAGR of ~10% since UPA 1 came to
power in FY05 – which is >400bps higher than the average inflation during the same period.
Additional ~INR 527bn to flow into rural economy from higher crop production – which
should drive a continued consumption demand
We estimate that higher agricultural production in FY11 will lead to an additional ~INR527bn
flowing into India’s rural economy solely from those crops which are under MSP regime.
Additionally, the government has continued its focus to stimulate rural India by allocating
INR741bn to the Ministry of Rural Development in the Union budget. These in turn should, in
our view, lead to continuing consumption demand from the rural economy and the following
companies should be key beneficiaries: M&M, Bajaj Auto, ITC, United Phosphorous, and
as a derivative SBI, Shriram Transport Finance and PNB. Domestic consumption remains
the mainstay of Indian economic growth, and rising rural prosperity from accelerating agri
revenues and higher NREGS wages should keep rural consumption buoyant into the next
year.
Income from crops under MSP regime is likely to show a significant jump of 17% yoy in FY11
which would be among the highest in past 6-7 years - despite the fact that the government
has not raised support prices materially in FY11.
Rural Prosperity has also been fuelled by the National Rural Employment Guarantee
Scheme
In addition to farmers, even landless laborers have been benefiting from the government’s
strong focus on rural India. Out of India’s near 400mn workforce dependent on minimum
wages, 70% is rural and more importantly, barely 30-40mn works in the organized sector.
Landless laborers have benefited from the government’s National Rural Employment
Guarantee Scheme and a successive increase in minimum wages across different states.
In most of the populous states minimum wages under NREGS have risen at a rate much
higher than the average inflation during FY07-10. The state of Maharashtra has witnessed the
maximum growth of 39% CAGR (FY07-10) followed by Gujarat and Orissa at 35% and 31%,
respectively. Highly populous states i.e. Uttar Pradesh and Bihar have also witnessed high
growth of 27% and 21%. On the other end of the spectrum, Punjab has raised the minimum
wages at a much lower CAGR of 10% - but on a significantly elevated base and still higher
than the average inflation of 5.3% during the period.
The government focus on the rural economy is evident from the budgetary allocation to
MGNREGS program - which has grown at a CAGR of 39% over FY05-12, even though the
absolute level of allocation has stagnated in the past few years.
As a corollary, higher minimum wages under NREGS have also pushed up the minimum
wages for other economic activities – leading to a mass recalibration of income for the
workers at the bottom of the pyramid, driving greater purchasing power. Given the higher
propensity to consume at the bottom strata of the society, we expect a continuation of
strong top-line growth for those companies which derive meaningful revenue from rural India.
High likelihood of normal Indian monsoon in 2011
By April, the Indian stock markets begin looking at the skies to gauge the prospects of the
Indian monsoon which begins in June and continues till the end of year. With elevated food
inflation, the markets are eagerly looking forward to a favorable monsoon forecast from the
Indian Meteorological Department (IMD). The IMD is expected to release its first monsoon
forecast in late April.
Based on meteorological trends and other weather factors, the prospects of a normal Indian
monsoon appear to be high. A good monsoon season in 2011 should ensure that crop
production for FY12 also remains robust (although the growth may not be as high as in FY11,
as base gets less benign) and drive a continuation in higher agri income in FY12 as well.
As per the National Oceanic and Atmospheric Administration, the appearance and
development of La Niña over the past nine months has been the most powerful on record.
According to DB’s Meterologist, Corey Lefkof, the La Nina conditions are expected to persist
through the summer and early fall of 2011 – albeit the intensity of La Nina may be lower than
that seen in Dec’10-Jan’11.
Empirically we have observed that such La Nina conditions are generally conducive for a
good monsoon precipitation for India. Monsoon rainfall in India has been either normal or
above normal in 10 of the past 12 instances of La Nina. This leads us to believe that 2011
should in all likelihood witness a normal monsoon rainfall, which should not only stimulate
agri-GDP, but also buoy domestic rural consumption and most importantly, prevent any
supply-side driven shocks to food grain prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Food grain production in India to touch record high in FY11
According to the Government of India’s recently released third advance estimates,
India’s food grain production is likely to touch a new record in FY11, rising by an
estimated 8% to 236mn tonnes. Production of wheat, pulses, oilseeds and cotton
is expected to touch a record high in FY11. Increasing production of foodgrains
remains critical to India where rising rural prosperity (particularly at the bottom of
the pyramid) has resulted in surging demand for foodgrains.
Higher agricultural production to add further momentum to rising rural
prosperity
Rural income in India is likely to witness a meaningful jump in FY11 driven by the
sharper-than-anticipated growth in agricultural production, coupled with a
continuing – albeit modest- increase in minimum support prices (MSPs which have
risen at an average of ~5%). We estimate that minimum support prices of food
grains have risen at a CAGR of 10% since UPA-1 came to power in FY05 – which
is 400bps higher than the average inflation during the same period. Income from
crops under MSP regime is likely to show a 17% yoy rise in FY11, which would be
among the highest in the past 6-7 years - despite the fact that the government has
not raised support prices materially in FY11.
Rural prosperity has also been fuelled by the National Rural Employment
Guarantee Scheme
Landless laborers have also benefited from the government’s National Rural
Employment Guarantee Scheme and a successive increase in minimum wages
across different states. In most of the populous states minimum wages under
NREGS have risen at a rate much higher than the average inflation during FY07-10.
The state of Maharashtra has witnessed the maximum growth of 39% CAGR
(FY07-10) followed by Gujarat and Orissa at 35% and 31%, respectively. On the
other hand, we attribute India’s sticky food inflation to higher rural prosperity
High likelihood of normal Indian monsoon in 2011
Based on meteorological trends and other weather factors, the prospects of a
normal Indian monsoon appear to be high. Any positive forecast on the Indian
monsoon is likely to be seen positively by the market given elevated food inflation.
According to DB’s meteorologist, La Nina conditions are expected to persist
through the summer and early fall of 2011. Empirically we have observed that
such La Nina conditions are generally conducive to a good monsoon.
Key beneficiaries: M&M, Bajaj Auto, ITC, United Phosphorous, SBI, Shriram
Transport, PNB,
Higher agri-income, coupled with continued focus of government to stimulate rural
India, should, in our view, lead to continuing consumption demand from the rural
economy and benefit the following companies: M&M, Bajaj Auto, ITC, United
Phosphorous, and as a derivative SBI, Shriram Transport Finance and PNB.
Rural prosperity set to
continue
Food grain production in India to touch record high in FY11
According to the Government of India’s recently released third advance estimates, India’s
food grain production is likely to touch a new record in FY11, rising by an estimated 8% to
236mn tonnes. Production of food grains – which form the biggest chunk of food items in
India - had declined in FY10 after the previous record high touched in FY09. Production of
wheat, pulses, oilseeds and cotton is likely to touch a record high in FY11. While production
of rice has risen on an annual basis, it remains below the record high seen in FY09. The sharp
increase in food grain production, particularly pulses, should assuage concerns on food
inflation, though we concede that the sharpest increase in food inflation have come more
from protein-linked foods – eggs, milk and fish – than food grains.
Increasing production of foodgrains remains critical to India, where rising rural prosperity
(particularly at the bottom of the pyramid) has resulted in surging demand for foodgrains.
Higher prosperity has resulted in shifting diet patterns with the poorest of the poor shifting
their staple diet from coarse cereals to foodgrains.
The robust growth in production is primarily attributable to the resilience of India’s rural
economy, percolation of new farming techniques and continuing budgetary support of the
government. There has been a sharp increase in investments in agriculture with the
agriculture Gross Capital Formation (GCF) rising to 20.3% in FY10 vs. 13.4% in FY05. In
addition, the agriculture GCF as % of total GCF has also risen from 2.5% in FY05 to 3% in
FY10. This has manifested itself in the form of greater farm mechanization leading to higher
usage of efficiency-enhancing farm implements like drip/micro irrigation, and tractors.
Higher agricultural production to add further momentum to
rising rural prosperity
Rural income in India is likely to witness a meaningful rise in FY11 driven by the sharper-thananticipated
growth in agricultural production coupled with a continuing – albeit modestincrease
in minimum support prices (MSPs – the minimum price which government pays to
farmers for few key crops). Minimum support prices for foodgrains have risen this year at an
average of 5.7%, which though modest is still up yoy. We estimate that the minimum
support prices of foodgrains have now been raised by a CAGR of ~10% since UPA 1 came to
power in FY05 – which is >400bps higher than the average inflation during the same period.
Additional ~INR 527bn to flow into rural economy from higher crop production – which
should drive a continued consumption demand
We estimate that higher agricultural production in FY11 will lead to an additional ~INR527bn
flowing into India’s rural economy solely from those crops which are under MSP regime.
Additionally, the government has continued its focus to stimulate rural India by allocating
INR741bn to the Ministry of Rural Development in the Union budget. These in turn should, in
our view, lead to continuing consumption demand from the rural economy and the following
companies should be key beneficiaries: M&M, Bajaj Auto, ITC, United Phosphorous, and
as a derivative SBI, Shriram Transport Finance and PNB. Domestic consumption remains
the mainstay of Indian economic growth, and rising rural prosperity from accelerating agri
revenues and higher NREGS wages should keep rural consumption buoyant into the next
year.
Income from crops under MSP regime is likely to show a significant jump of 17% yoy in FY11
which would be among the highest in past 6-7 years - despite the fact that the government
has not raised support prices materially in FY11.
Rural Prosperity has also been fuelled by the National Rural Employment Guarantee
Scheme
In addition to farmers, even landless laborers have been benefiting from the government’s
strong focus on rural India. Out of India’s near 400mn workforce dependent on minimum
wages, 70% is rural and more importantly, barely 30-40mn works in the organized sector.
Landless laborers have benefited from the government’s National Rural Employment
Guarantee Scheme and a successive increase in minimum wages across different states.
In most of the populous states minimum wages under NREGS have risen at a rate much
higher than the average inflation during FY07-10. The state of Maharashtra has witnessed the
maximum growth of 39% CAGR (FY07-10) followed by Gujarat and Orissa at 35% and 31%,
respectively. Highly populous states i.e. Uttar Pradesh and Bihar have also witnessed high
growth of 27% and 21%. On the other end of the spectrum, Punjab has raised the minimum
wages at a much lower CAGR of 10% - but on a significantly elevated base and still higher
than the average inflation of 5.3% during the period.
The government focus on the rural economy is evident from the budgetary allocation to
MGNREGS program - which has grown at a CAGR of 39% over FY05-12, even though the
absolute level of allocation has stagnated in the past few years.
As a corollary, higher minimum wages under NREGS have also pushed up the minimum
wages for other economic activities – leading to a mass recalibration of income for the
workers at the bottom of the pyramid, driving greater purchasing power. Given the higher
propensity to consume at the bottom strata of the society, we expect a continuation of
strong top-line growth for those companies which derive meaningful revenue from rural India.
High likelihood of normal Indian monsoon in 2011
By April, the Indian stock markets begin looking at the skies to gauge the prospects of the
Indian monsoon which begins in June and continues till the end of year. With elevated food
inflation, the markets are eagerly looking forward to a favorable monsoon forecast from the
Indian Meteorological Department (IMD). The IMD is expected to release its first monsoon
forecast in late April.
Based on meteorological trends and other weather factors, the prospects of a normal Indian
monsoon appear to be high. A good monsoon season in 2011 should ensure that crop
production for FY12 also remains robust (although the growth may not be as high as in FY11,
as base gets less benign) and drive a continuation in higher agri income in FY12 as well.
As per the National Oceanic and Atmospheric Administration, the appearance and
development of La Niña over the past nine months has been the most powerful on record.
According to DB’s Meterologist, Corey Lefkof, the La Nina conditions are expected to persist
through the summer and early fall of 2011 – albeit the intensity of La Nina may be lower than
that seen in Dec’10-Jan’11.
Empirically we have observed that such La Nina conditions are generally conducive for a
good monsoon precipitation for India. Monsoon rainfall in India has been either normal or
above normal in 10 of the past 12 instances of La Nina. This leads us to believe that 2011
should in all likelihood witness a normal monsoon rainfall, which should not only stimulate
agri-GDP, but also buoy domestic rural consumption and most importantly, prevent any
supply-side driven shocks to food grain prices.
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