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