Agricultural sector is projected to see a significant reduction in supply, demand, and value. This will lower farmer household incomes. Here’s how we can safeguard our farmers through this
As a result of the rapid spread of COVID-19, global and domestic economies have taken a hit due to the lockdown of economic activities. GDP forecasts for 2020 have been revised downwards, from roughly three per cent to negative three per cent globally, and from roughly six per cent to two per cent in India.
Within the country, the government implemented a nationwide lockdown from March 25th to contain COVID-19’s spread. While some sources predict a rapid recovery starting in 2021, we expect a much longer downturn, lasting 18-24 months, driven by the need for an interim stop-start economy. In general, three main post-lockdown scenarios are possible, each with different economic implications:
1. Containment by September 2020: This is the best-case scenario, where COVID-19 is contained through a scientific breakthrough such as the development of a vaccine or scalable treatment, and we experience a sharp drop and quick resurgence in economic activity.
2. Stop-start containment until March 2021: This is the most likely scenario, in which India’s economy is selectively opened, and re-closed periodically to contain the spread. Similar to the containment scenario, the pandemic will be resolved through a scientific breakthrough, but this breakthrough does not emerge before December 2020 (or later). Here, India is expected to see an extended period of dampened economic activity before recovery.
3. No containment until 2023-2024: This is the worst-case scenario, which assumes that no scientific breakthrough is established in the medium-term, and no further containment measures are taken. The pandemic’s resolution relies exclusively on herd immunity (via contraction and recovery), and implies a long economic downturn (until 2024 at least), and high mortality count.
Through all of these scenarios, agricultural crop production is an essential business and is expected to continue operations. However, producers will face heightened challenges, including reduced demand, supply chain disruptions, lower availability of farm labour, and price volatility leading to stressed farmer economics. Although the government has launched interventions to reinforce food security, relief efforts to date are insufficient.
Additional support is needed to bolster the livelihoods of agricultural workers, who make up 58 per cent of India’s population. We anticipate farming households producing high-value cash crops such as fruits and vegetables to require the greatest support, as these crops tend to be highly perishable, and therefore, more vulnerable to supply chain disruptions and reduced demand.
To identify appropriate agricultural interventions, TechnoServe—the international nonprofit where we work—conducted a 24-month projection to assess COVID-19’s impact on agricultural supply, demand, price, value, and farmer income. Forecasts were performed for more than 160 crops across fruits, vegetables, cereals, pulses, oilseeds, fibres, spices, plantation crops, and floriculture. These forecasts provide directional insight on specific crop categories and geographies that are likely to experience the greatest adverse impact due to COVID-19.
Under a stop-start containment and U-shaped recovery (scenario two), India’s agricultural sector is projected to see a significant reduction in supply, demand, and value that persists through 2022.
Aggregate crop supply is expected to decline by 470 million metric tons between 2020 and 2022, with an 11 per cent decline versus baseline projections in 2020, a nine per cent decline in 2021, and a six per cent decline in 2022. This decline will be driven by:
Although the government is currently focused on staple crops, we anticipate cash crops to experience a greater percentage decrease in output—particularly floriculture, fruits, oilseeds, and vegetables—which together contribute to roughly 45 per cent of total crop value. These crop categories tend to be more perishable and are, therefore, particularly vulnerable to COVID-19 induced supply chain disruptions.
Aggregate crop demand is expected to decline by 580 million metric tons between 2020 and 2022, with a 12 per cent decline versus baseline projections in 2020, an 11 per cent decline in 2021, and an eight percent decline in 2022. This decline will be driven by:
Crop categories projected to experience the greatest percentage decrease in demand are floriculture (40 per cent decline), fruits (30 per cent decline), and vegetables (30 per cent decline), as these categories consist largely of premium or luxury crops. On the other hand, staple crops (such as cereals, pulses, fibres, and some oilseeds) are projected to see a slight increase in demand, as these crops tend to exhibit negative income elasticities (that is, their consumption increases with a fall in income).
Farm gate prices for crops will face significant volatility due to changing supply and demand dynamics. Crop categories we anticipate will experience the greatest price decrease are spices (30 per cent decline) and vegetables (20 per cent decline), as the drop in demand is projected to be greater than the drop in supply. Conversely, pulses, oilseeds, plantation crops, cereals, and fibres are expected to experience a price increase due to a combination of decreased supply and increased demand.
Aggregate crop value, computed as the product of projected supply and price, is estimated to decline by INR 4.4 lakh crores between 2020 and 2022, with a 15 per cent decline versus baseline projections in 2020, a 14 per cent decline in 2021, and an 11 per cent decline in 2022. The greatest value decrease is expected in fruits and vegetables, with an INR 0.6 lakh crore reduction in each category due to reduced prices and output. Plantation crops such as cocoa, coffee, tobacco, cotton, and so on, are projected to drive an additional INR 0.2 lakh crore value loss because of their significant contribution to agricultural value.
From a geographical perspective, Uttar Pradesh, Rajasthan, Maharashtra, Karnataka, Madhya Pradesh, Gujarat, and Andhra Pradesh are expected to experience the greatest value loss, due to their projected value decline (12-22 per cent) and significant contribution to India’s total agricultural output value (roughly 60 per cent of total domestic value).
As such, we recommend that interventions target the intersection of vulnerable crop categories (fruits, vegetables, plantation crops) and geographies (the states mentioned above), which would account for 55 per cent of the projected value loss and cover approximately 17 million farming households.
Across India, the COVID-19 induced slowdown will place stress on farmer economics and is expected to lower farmer household incomes by an average of 33 per cent. The 17 million farming households identified in focus clusters will face disproportionate impact: We anticipate an aggregate household income reduction by 80 per cent versus baseline levels.
The worsening of farmer economics will have several adverse impacts. Additionally, farming households will be pushed into poverty and face heightened issues of food security and nutritional balance. Moreover, farmers will have difficulty producing crops in upcoming harvest seasons, which will dampen agricultural growth in the medium-term.
To reduce value loss and safeguard farmer economics, we need collaboration between with different stakeholders, including farmer producer organisations (FPOs), government, nonprofits, and agribusinesses, across four key interventions:1. Minimising supply chain disruptions by:
2. Bolstering demand for agricultural produce by:
3. Managing price volatility of agricultural produce by:
4. Working with farmers to improve household income and access government COVID-19 schemes by:
Amy Yang is a fellow at TechnoServe India. Prior to joining TechnoServe, she worked as a senior consultant at Oliver Wyman’s New York Office.
Punit Gupta currently serves as the country director at TechnoServe India, where he provides strategic programme design guidance. Previously, Punit served as CEO of Intel Capital-funded ESPL Media.
This article has been sourced from India Development Review. You can read the original article here.