Recently, the agriculture ministry forecast a record production of foodgrains for the 2024-25 kharif season, raising hopes of a rebound in the agricultural economy. But MSP operations remain moderate for crops other than paddy, and the terms of trade continue to work against farmers in most cases. Sandip Das explains whether the odds favor a recovery in farmers’ incomes

Fingers crossed for stronger growth in the agricultural sector

After remaining strong for a few years, gross value added (GVA) growth in agriculture and allied sectors plunged to just 1.4% in 2023-24 due to patchy monsoon rains which led to a decline production of pulses and other horticultural crops. In the first quarter of FY25, the firm economy increased by 2% compared to 3.7% a year ago. Economists have pegged GVA growth for agriculture at 3-3.2 per cent for the current financial year.

According to early preliminary estimates, foodgrain production is likely to reach a record high of 164.7 million tonnes (MT) in the 2024-25 kharif season, with a year-on-year increase of 5. 4%. While this has the potential to boost GVA growth in agriculture and allied sectors, increase farm incomes and boost rural consumption, much will depend on price realization by farmers. Minimum support price (MSP) procurement will have to be intensified for pulses and oilseeds, which are currently at very low levels. As domestic prices of edible oils have risen after the recent hike in import duties, farmers of soybean and other oilseeds are being left behind as profits are being cornered by trade in the absence of operations MSP.

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What about rabi crops?

Areas cultivated during the rabi (winter) season for wheat, mustard and chana are expected to increase, taking advantage of high soil moisture due to above-normal rainfall from June to September. Rabi sowing, which has just started, looks set to be robust. Overall rainfall during these four months, during which the country receives more than 70% of its annual rainfall, was 8% higher than the baseline figure. Additionally, thanks to excess rainfall, the country’s 155 key reservoirs are filled to 86% of their capacities, 25% more than a year ago. If weather conditions remain good as harvests approach in March and April, higher grain production can be expected, which in turn would lower agricultural commodity prices.

Imports of oilseeds and pulses down

The Ministry of Agriculture announced the purchase of oilseeds like soybean and mustard from MSP. The oilseed production projection for the 2024-25 crop year (kharif and rabi seasons) is 44.75 tonnes, 13 per cent higher than the previous year’s 39.66 tonnes. In September, the government increased import duties on edible oils – palm, soya and sunflower – by 20%. Professional Association of Solvent Extractors India said edible oil imports are expected to fall to 15 MT in the oil year 2024-25 (November-October) from 16 MT in 2023-24, on record oilseed production. India meets around 58% of its edible oil demand through imports.

Pulse imports could also decline with the higher production outlook. Chana production, which constitutes 50% of India’s pulse production, is estimated at 13.65 tonnes, 24% higher than the 11.03 tonnes in the 2023-24 crop year. Last year, the chana crop was affected by unfavorable weather conditions, forcing the government to relax import duties on yellow peas and desi chana, used as substitutes for major pulse varieties.

Impact on inflation and food prices

Rural consumption is also a function of inflation. The recent rise in food prices is raising concerns, despite the government setting a record foodgrain production target of 341.55 tonnes for the 2024-25 crop year. Retail inflation, based on the Consumer Price Index (CPI), reached a 14-month high of 6.21% in October 2024, driven by a sharp rise in consumer prices. food products. The Consumer Food Price Index (CFPI), the index of food inflation, stood at 10.87% (provisional) for October and the corresponding inflation rate for rural and urban areas s ‘is high at 10.69% and 11.09%, respectively. The high food inflation recorded in October was mainly due to the rise in prices of vegetables, fruits and oils and fats. Food prices represent almost 50% of the CPI.

The production of rice, the largest kharif crop, is expected to reach 119.93 tonnes in the current kharif season (2024-25), with the overall production in the current crop year likely to touch a record 136, 3 tons. Wheat production is expected to reach a record 115 tonnes for the current crop year. This would ensure adequate domestic supply, price stability and India may not need to resort to import of essential rabi crops.

Erratic weather conditions remain a threat

Even though the data on kharif crops being harvested looks promising, erratic weather conditions in the coming months could affect the rabi yield. In 2022 and 2023, heat waves and excess rain preceding the March wheat harvest had a significant impact on crop yield. The Agriculture Ministry said more than 60 percent of wheat seed varieties grown this year are climate-tolerant, giving reason for hope. Irregular weather events such as excessive rainfall over a short period and heat waves have also impacted the yield of several horticultural crops like onion, tomato and vegetables, leading to price volatility.

A reserve Bank of India (RBI) of August 2024 had reported how climate change was fueling a rise in food prices. He said that in recent decades, weather events have become the main reason for rising food prices.