Profitable trends: The modern farmer
Suffering from labour shortage and lower yields, Indian farmers have started mechanising their farms. We tell you which companies stand to gain from this shift
By Research Desk | Nov 5, 2018
Emerging industries often present a great investment opportunity. There are industries that will die in the future and new ones will emerge. Your task as a successful long-term investor is to identify these changing trends, and then put your money on the emerging ones. The good news is that these big changes or shifts are often gradual and visible, and you can make money off them.
We have spotted five big shifts happening right now. In this article, we discuss the third one.
A steady change is blowing across Indian farmlands. Unavailability of labour is driving farmers towards increased mechanisation; poor crop yields are giving way to higher output hy, and; and an increasing use of irrigation has started to somewhat mitigate the effects of poor rains in some places.
Why is this shift happening?
One of the primary drivers of this change is the unavailability of labour. An increase in the level of education, caste-based discrimination, farm seasonality and a flight to metros is resulting in lower supply of labour in the farmlands.
Indian farmlands have some of the world's lowest yields. Low yield per hectare and high dependence on traditional agriculture techniques are major reasons for lower productivity. This has resulted in the use of soil nutrients, pesticides and herbicides.
The use of proper equipment can increase farm productivity by 30 per cent and reduce the input costs by 20 per cent, says a Grant Thornton-FICCI report.
Signs of this shift on the ground
Government plans to double farm income by 2022. This will act as a major push for the agriculture sector. Government has also increased its budget allocation towards agriculture in its current five-year plan, to Rs2.12 lakh. Further initiatives like Direct Benefits Transfer, Krishi Sinchai Yojana, Electronic National Agriculture Market, Soil Health Card schemes, etc., have been taken towards this goal.
The shift towards increased mechanisation is happening across the country. Farm owners are now relying on mechanised farming more than ever. Tractors and tillers are recording their highest-ever sales in the country. A recent trend of hiring tractors rather than buying them has made their use affordable to even smaller farmers.
An increased focus on irrigation across the country has led to lower effects of poor rains in certain areas. The use of pesticides, herbicides and soil nutrients has increased even though they are still low. And more farmers are now using the higher-yielding hybrids to grow such crops as rice and barley and a wide variety of hybrid fruits and vegetables.
An increasing use of irrigation is likely to benefit Jain Irrigation. It is the leader in micro irrigation systems and has a market share of around 50 per cent.
Higher irrigation will see more pipes being used across farms. The big gainers in this industry are likely to be Finolex Industries, which derives 70 per cent of its pipe and fitting revenues from the agriculture sector.
Hybrid seed producer Kaveri Seed Company is rapidly coming out on top in hybrid seeds of rice, maize and vegetables like hot pepper, okra, tomato, sweet corn and gourds.
More mechanisation in farms will benefit market leader M&M and VST Tillers Tractors. VST's cheaper power tillers have become popular in recent years while M&M recently reported its highest-ever sales. Another tractor manufacturer Escorts is working on a driverless tractor.
Pump manufacturers are likely to benefit from higher irrigation. Kirloskar, the country's largest pump manufacturer and KSB Pumps, a Germany-based global pump manufacturer, stand to gain.
For the other stories in this series, click on the links below.
Are you missing an opportunity to invest in great stocks at low valuations? There are thousands of listed companies in India and yet only a handful that are worth investing at a particular time and at a particular price.
Our equity team has sifted through hundreds of companies and selected stocks that you should invest in. This list now has 36 stocks on it, and new ones are being added every month. Thousands of our members are using stagnant equity markets to buy great stocks at low prices. Membership of Value Research Stock Advisor is available at a 40% to 60% discount.