Higher food prices to aid farm income, even as costs rise: BofA Securities

A normal monsoon will help raise agri output while higher food prices will help increase farm incomes, says the report

Expectations of a normal monsoon and elevated food prices have brightened the outlook for rural income in rabi and kharif season for FY23, a report by BofA Securities stated on Tuesday.

What the BofA Securities report says:

• Normal monsoon in 2022 to aid agri output growth
• Elevated food prices to aid income, even as farm costs rise
• Non-agri wage growth has started to improve

According to the report, the normal to good monsoon rains in the last three years have aided kharif food grain production, up 2.8 per cent year-on-year (YoY) on an average, and if normal monsoon in 2022 facilitates output, then kharif food grain production may go up 2.5 per cent YoY. This comes atop a 1.5 per cent YoY increase in rabi food grain output.

Over a period of time, share of crops in agriculture has come off, from 67 per cent in FY11 to 55 per cent in FY21. Likewise non-crops have risen in importance, making farm incomes less vulnerable to rain shock.

The rating agency sees farm costs rising by seven per cent YoY in kharif season in FY23, up from 5.9 per cent yoy in FY22, this expecting kharif income to grow by 10.1 per cent YoY in FY23 atop 9.5 per cent YoY in FY22. Meanwhile, the net rabi income is estimated to have grown by 12 per cent YoY in FY22, much higher than the three per cent YoY in FY21. 

The report highlights that a sharper increase in minimum support price (MSP) is unlikely to exert serious pressure on inflation, encouraging the farmers to sell their produce directly in 'mandis'.

The report also says that non-agri wage growth has started to improve after declining by 0.5% YoY in early FY22, it is up 4.2% YoY in 2H FY22 .