Farm profits per hectare to grow 7-9% in crop year 2019-20

Improving mandi prices to boost kharif profitability despite production decline, rabi to profit from higher yields

Irregular distribution of the south west monsoon in 2019 has impacted the 3Ps of Indian farming – productivity, prices, and profitability – unevenly.

Despite this, overall farm profits per hectare will grow 7-9% on-year in crop year 2019-20 (April 2019 to March 2020), a CRISIL Research analysis of 15 key minimum support price (MSP)-linked crops on parameters such as crop productivity, output, international and domestic demand-supply scenario, share of government procurement and exports, farm gate prices, and evolving cost dynamics indicates.

In crop year 2018-19, farm profits jumped 26% on-year over a low base of the preceding year (2017-18), which had seen per-hectare profits decline due to low mandi prices following a bumper crop.

The outlook for this year is muted in comparison, though a rise in mandi prices for kharif and higher productivity for rabi crop would lend support to overall profitability per hectare.

Rationale for our outlook: Unprecedented heavy rainfall in September-October would lower kharif crop production by 4-6% on-year. On the other hand, a 10% above-normal monsoon has filled reservoirs to the brim, which in turn, promises to elevate rabi crop productivity and lead to 7-8% higher output.

While lower market supply of kharif foodgrains will push up mandi prices by over 10%, higher MSP and government support for wheat (which accounts for over 50% of the rabi crop output) is expected to aid price growth for rabi, leading to an expansion in the overall per-hectare farm profitability in crop year 2019-20.