India Market Strategy : Agri 101 - Cereals—advantage exports :: Credit Suisse

● Cereals matter less than widely believed. Of all agri. items, cereals
are impacted most by MSPs and are also most analysed. But they
were just 21% of FY05 agri. output, and likely lower now. They also
matter less for inflation, which is currently all about fruits & vegetables
and meat (and these are as important as cereals). Full report.
● Per capita consumption of cereals has been falling in India for
decades, as automation reduces need for calories. The decline
now exceeds population growth implying flat cereal demand. But
production is still rising with improving yields, creating surpluses.
Cereal inventory is at record levels despite surge in exports.
● A slowdown in Monsoons from mid-Aug has reduced the YoY
increase in acreage sown. Further, cereals, pulses, oilseeds,
fibres and sugar form 40% of agri GDP (only ~5.2% of total GDP)
● But the broader agricultural story remains robust. Rising yields for
laggard states will continue to push avg. yields up. Rising cereal
surpluses should aid exports; improving oilseeds/pulses acreage
should help cut imports. But for inflation to fall, fruits & vegetables
prices need to fall (and these are not as impacted by monsoons).

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Of the various parts of agricultural GDP, cereals (wheat, rice, maize,
etc.) are the most impacted by MSPs and have the best data
availability. Not surprisingly, they are also the most analysed

But they were just 21% of agricultural output in FY05 (milk, fruits &
vegetables are as important; Fig. 1), and likely lower now. They also
matter less for inflation, which is currently all about fruits & vegetables
and meat

Per capita consumption of cereals has been falling in India (Fig. 3) for
decades, as automation reduces need for calories. The decline per
capita now exceeds population growth implying flat cereal demand.
But production is still rising with improving yields, creating surpluses.
Inventory of cereals is at record levels despite exports surging (Fig. 4)
from US$2bn in CY09 to US$10bn (CY13 ann.).

Temper bullishness on impact of monsoons
Monsoons have been better this year, but a slowdown from mid-Aug
has reduced the YoY increase (acreage sown +5% now vs. +9% in midAug). Further, cereals, pulses, oilseeds, fibres and sugar are together
40% of agri GDP, and thus only 5.2% of total GDP. But the broader
agricultural story remains robust. The catch-up in yields for laggard
states should continue to push average yields up. Rising cereal
surpluses should help exports, and improving oilseeds/pulses acreage
should help cut imports. But for inflation to fall off, we would need fruits
& vegetables prices to fall, which are not as affected by monsoons.