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India Agribusiness Report Q1 2012
Business Monitor International, Nov 2011, Pages: 75
Business Monitor International's India Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on India's agribusiness service.
BMI View: The southwest monsoon has progressed much better than initially expected, boosting overall agriculture output of the country. In line with BMIs long-held view, this has prompted the government to lift a three-year export ban on wheat, rice and sugar largely on the back of bulging domestic supplies.
Ultimately however, BMI believe that India's agriculture potential is still largely untapped, mainly hindered by slow bureaucratic processes and systemic inefficiencies.
Key Trends
- Sugar production growth to 2015/16: 34.9% to 37.1mn tonnes. This will come from growing consumption through population growth. A growing preference for soft drinks will also buoy sugar demand in India.
- Palm oil production growth to 2015/16: 34.2% to 70,710 tonnes. India will be increasingly reliant on palm oil imports over the long term, owing to a lack of investment into domestic palm oil cultivation. Poultry production to 2015/16: 27.8% to 3.6mn tonnes. Despite this robust growth, inefficiencies in the sector will see demand outstrip production by 2015 and for the country to become a net importer of poultry.
- 2012 real GDP growth: 7.5% (down from 7.4% in 2011; predicted to average 7.6% from 2011 until 2016).
- Consumer price inflation: 8.5% average in 2012 (down from 9.2% y-o-y average in 2011; predicted to average 8.4% from 2011 until 2016).
Industry Developments
- A domestic sugar glut has once again highlighted the deficiencies in India's highly regulated sugar sector. In the short term, BMI believe that increased pressure from milling groups will push the government to increase the sugar export quota again. In the long term, BMI believe that deregulation of the sugar industry will be a slow and difficult process. BMI highlight, however, that the regulated release mechanism and the sugar stock holding limit programme are the measures most likely to see changes. BMI believe that reform would be a step in the right direction in allowing market forces to better determine the supply-and demand dynamics within the industry.
- According to data from the Solvent Extractors of India, palm oil imports fell by 8.9% year-on-year (y-oy) from January to May. This subdued import demand in H111 underlines BMIs earlier view for a slowdown in H111 but for a likely pickup in import demand from India in the coming months. That said, this dampened demand for palm oil could be due to expectations of a stronger oilseed harvest in 2011.
- Indeed, the total area planted for the rabi (winter) oilseed crop was 4.0% higher y-o-y at 8.5mn hectares. Overall, total oilseed output is expected to grow by 10% y-o-y to reach 7.2mn tonnes in 2011, according to estimates from the United States Department of Agriculture.
- The Karnataka Cooperative Milk Producers' Federation (KMF) is planning to set up a 'mega dairy' factory in Bangalore, with capacity to process 1mn litres of milk a day. According to chairman of the group, G Somasekhara Reddy, the initial set-up costs will reach INR 800,000 (US$18.0mn). The KMF has also partnered with Fonterra to set up a cheese manufacturing plant with annual capacity of 50 tonnes. The cheese will be sold under the brand name 'Nandini'. Overall, BMI believe these private investments underscore the rewards on offer for the Indian dairy industry.
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