Riding high on reforms | Value Research The government's aim of doubling farm income by 2022, along with other reforms has revitalised the sector
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Riding high on reforms

The government's aim of doubling farm income by 2022, along with other reforms has revitalised the sector

Last year was the second consecutive year of good rains in the country. This led to a higher farm output and consequently higher rural wage growth. Additionally, minimum support price (MSP) hikes, direct benefit transfers and loan waivers contributed to higher farm incomes, leading to higher volumes for retail, FMCG, farm equipment, tractors, automobiles and durables companies. Even as the advantages of the monsoons kicked in last year, the effects of demonetisation were visible in rural India as well. Also, an excess increase in the supply of pulses saw prices fall below MSP.

What's in store in 2018?
Improvement in realisation, along with increasing number of schemes coming under the direct benefit scheme, augur well for farmers. The government's goal to double farmer incomes by 2022 should see it introducing more reforms and policy changes to expedite that goal.

Key tailwinds
Better MSPs would be a key driver of farm income. Also, the government is likely to push ahead with further reforms and policies to boost farm income in the upcoming budget. Moreover, better execution of direct benefit transfer to do away with delays should add to the government's goal to doubling farm income by 2022. Wider acceptance of Pradhan Mantri Fasal Bima Yojana (crop insurance scheme) should also work in the farmer's favour.

Key headwinds
Rising input costs, especially daily wage labour costs, could dampen realisations for farmers. Daily wages for male labourers, for instance, has moved up from Rs 250 per day to Rs 350 per day. Slow implementation of farm loan waiver scheme could also hurt the prospects ahead. Procedural delays, lack of clarity and hesitance by farmers to take up the Pradhan Mantri Fasal Bima Yojana also need to be addressed.

Valuations
Though valuations in the sector have gone up, you can still find pockets of value. MNC agri input companies generally trade at higher premiums owing to their strong network, high farmer reach, brands and bigger marketing budgets. This is why the MNC agri input companies dominate the pan India market. Farm equipment manufacturers continue to be attractive, with demand expected to remain strong well into 2019.


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