Rural demand to remain tepid this fiscal: BofA-ML

According to an estimate by the American brokerage Bank of America-Merrill Lynch the coming summer harvest will have farm income decelerating to 10.3% in FY15

Rural demand will continue to remain subdued for some time due to the deceleration in farm income, says a report.

According to an estimate by the American brokerage Bank of America-Merrill Lynch (BofA-ML) the coming summer harvest will have farm income decelerating to 10.3% in FY15, from 16.5% last year.

"We continue to remain bearish on rural demand. We had turned negative on rural demand in April 2012 after being bullish for three years," BofA-ML report said.

According to the report, the jump in rural incomes was largely due to a spike in commodity prices driven by the expansionary monetary policy or quantitative easing by central banks.

"The ensuing supply response has weakened pricing power for farmers," the report said.

"Wheat farmers will see earnings growth slow to 10.2% from 17.3% last year, factoring in some crop damages due to the hailstorms in late February and early March," the BofAML report said.

Pulses and oilseeds growers will also see incomes slowing.

"We will reassess our call in early July after we get clarity on the Southwest monsoons," the report said.

It said change in formulating minimum support prices after the ongoing polls will also be closely looked at.

The report also said horticulture growers and dairy farmers are beginning to lose pricing power with supply catching up with demand.

Past five years' average production growth of vegetables (5.5%), fruits (4.3%) and milk (4.2%) is outstripping population growth of 1.3% and cooling excess demand, it added.