COVID-19 Impact on Agri-commodities

What is the issue?

  • The COVID-19-driven lockdown has led to a flattening of prices and demand destruction for agri-commodities.
  • The two agricultural commodities – potato and milk – best indicates this trend.

What is the overall scenario?

  • Both potato and milk were experiencing significant production shortfalls.
  • In ordinary circumstances, it would have resulted in prices shooting up at this time.
  • Instead, the prices have remained flat or even collapsed, due to the demand destruction from lockdown.

What is the case with potatoes?

  • Cold stores across India have stocked only an estimated 36 crore bags (50 kg each) of potatoes harvested in February-March, 2020.
  • This was as against 48 crore in 2019, 46 crore in 2018 and the record 57 crore bags of the 2017 post-demonetisation crop.
  • Production being much lower, it should have translated into far better prices than 2019.
  • But the lockdown has upset all the calculations.
  • Many of the growers have deposited the bulk of their produce in cold stores for making staggered sales from April to December 2020.
  • Till early-April, regular large potato was selling from Agra’s cold storage units at around Rs 21 per kg.
  • But, now, due to the lockdown’s impact, it is fetching Rs 18.
  • This is not in line with the usual supply-demand pattern.
  • Now, unusually, the demand curve itself is “shifting”.
  • The collapse of institutional or business demand for potatoes is causing this.
  • [Hotels, restaurants and street food joints are shut and no weddings or other public functions are taking place.]
  • When potato is being consumed only in home kitchens, there is less overall demand than before even at the same price.
  • Price is thus expected to drop by another Rs 4-5/kg towards mid-June 2020.

What are the larger implications?

  • The ultimate sufferers are farmers.
  • For those who have harvested, their returns are sure to take a hit.
  • On the other hand, the situation may worsen with kharif potato plantings during May-August in Karnataka and Maharashtra.
  • The farmers here would be discouraged from cultivating potato.
  • Once their crop (of 65-70 days, unlike the 110-120 days varieties grown in UP) arrives in the market, prices will hit rock-bottom.
  • Something should be done about demand.
  • The government could consider allowing APMC (agricultural produce market committee) mandis to open 24 hours.
  • That would enable social distancing and make buyers more confident about going to the markets.

What is the case with milk?

  • 2019-20 saw India’s milk production, perhaps, fall for the first time in decades.
  • Till mid-March 2020, the condition was that the country actually had to import up to one lakh tonnes of skimmed milk powder (SMP).
  • Before the lockdown, dairies were selling SMP at Rs 300-310 per kg and cow butter at Rs 320 per kg.
  • Those prices have not just flattened, but crashed to Rs 170 and Rs 230/kg levels.
  • Many dairies have further slashed procurement prices.
  • This again is due to the absence of institutional demand, from tea stalls, ice-cream makers, suppliers of khoa/chenna and sweetmeat sellers.
  • This, again, is a “shift” and not mere “movement” along the demand curve.

 

Source: Indian Express

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