Impact of Covid 19 on India's Agrifood sector

Lockdown period coincided with harvesting season

On 24^th March, a 21-day lockdown was announced in India. Agriculture was exempted, and over the following weeks guidelines were published that exempted related activities, such as inputs, fisheries and food processing. Implementation took some coordination effort, for example setting up a system of permission passes, and uniform enforcement by the local police.

The lockdown and closure of public transport led to an exodus of labourers from big cities to their home villages. This coincided with the harvesting season of the winter-planted crops (wheat, lentils, pulses, oilseeds) in north and central India, which faced a record harvest after a good monsoon. However, wholesale markets were closed and there was a shortage of farm labourers. Regional governments made procurement schedules and set up shelters (by now 26,476 relief and shelter camps have been established across the country and are housing over a million people).

On April 14, the lockdown was extended until May 3. Additional economic activities were allowed in low-risk areas. Also, work activities under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA; wage employment for households who volunteer to do unskilled manual work) were permitted. On 4 May, the lockdown was extended until 17^th  May, and the government classified the country in red, orange and green zones based on the number of COVID19 cases. Several norms have been relaxed in the least-affected areas. Unfortunately the rate of infection is increasing (India currently has recorded around 67,000 cases).

Coronavirus depresses demand and disrupts supply

The lockdown immediately led to a drop in domestic demand and affected trade. Some farmers growing high value fruits and vegetables for upmarket restaurants and hotels saw no other options but to feed those products to their cattle or use them as manure. Onion prices decreased by 50 percent and may crash further, due to higher production and lack of labour and transportation. In many regions the government intervened.

Dairy showed a mixed picture. Following the lockdown, consumers initially crowded milk parlours to stock up. Amul, India’s largest milk co-operative, announced an increase in production of dairy products. However, within a week milk prices started collapsing as office canteens, restaurants and sweet shops remained closed. Some milk was converted to skimmed milk powder and butter, of which there are now large volumes in storage.

The spread of misinformation about poultry being a source of COVID19 on social media heavily impacted consumption. The government countered the misinformation, but the losses between January and mid-February amount to USD 236 million. Sales of poultry meat went down with a staggering 80 percent, and prices for poultry meat were halved. Over a million small poultry farmers and over half a million persons working in the sector have become unemployed. This also impacted feed producers as poultry farmers cancelled orders, some farmers even burying their chickens alive. As consumers looked for alternatives, the prices of jackfruit increased by 120 percent. The poultry sector is predicted to roll back by the end of this year, although capital for new investments may remain limited for some time. The Poultry Federation of India has asked the government for support such as rescheduling of loans, promotion of frozen/cold chicken meat, cold storage, feed subsidies, and introduction of eggs in mid-day meal schemes. April already witnessed some recovery, with 60-70 percent movement of produce and raw material. In the near future, the sector is expected to focus more on online retail, hygienic, high quality food, traceability and labelling.

Worried by the misinformation in the poultry sector, companies selling aerated beverages, ice-creams and juices recently urged the Food Safety and Standards Authority of India to clarify that chilled products are safe for consumption.

Processed food companies ramped up production after the lockdown, as people are stocked up on (packaged) groceries. Modern retail, representing only 2.4 percent of grocery retail in India, benefited from this in the short term. However, regulations limiting store operations as well as disruptions in logistics and labour movement led to low inventory and sales. Private label branded products were introduced or their distribution ramped up. India’s import of palm oil dropped by 58 percent in the month of March when compared to March 2019, due to lower horeca demand, logistics challenges and higher import duties. In general, there was a drop of 40 percent in edible oil processing, packaging and distribution due to labour shortage. Animal markets were closed and affected export of meat (products) such as buffalo.

Since the lockdown, many of India’s private ports declared force majeure. The Ministry of Commerce instructed ports and air cargo stations to have sufficient manpower to prevent congestion, and the Food Safety & Standards Authority declared import clearance of food items and testing as essential services. Still, importers face difficulties evacuating containers from the terminal due to a shortage of drivers, workers and trucks.

Fishing in troubled waters

The lockdown stopped fishing boats from reaching the shores with their catch. Even boats which reached the shores, could not find vehicles to ship the products to the processing centres. According to the Central Institute of Fisheries Technology (CIFT), India’s fishery sector made losses of around 28 million euros a day. As a result, about 700,000 tonnes of fish had to be thrown away. Currently, sailors are reluctant to leave their families during the lockdown.

India’s single biggest export commodity is shrimp. More than 90 percent of it is exported to major destinations like US and China with 42 percent and 25 percent respectively and then to EU, South East Asia and Japan. With 80 percent of brooders (mother prawns) imported from the US, the lockdown has hit production in hatcheries of Andhra Pradesh; prompting the Andhra Pradesh government to set up an Aquaculture Authority to monitor the hatcheries from seed to marketing, and to offer a Minimum Selling Price.

Floriculture impacted as weddings are postponed

In India, flowers are primarily used for weddings and religious ceremonies. The wedding season runs from February until May and in November and December. The wedding industry turnover is around USD 40 – 50 billion and among the biggest sources of income for the floriculture sector. As COVID19 led to weddings being postponed, flower growers along with companies that produce planting materials suffered financial losses. With no social and religious gatherings taking place, domestic demand for flowers stopped almost completely. Export of roses to the Gulf states was also hit by an import ban.

Inputs

Record fertilizer sales were witnessed during the lockdown period in the month of April. The forecast of a normal monsoon this year would normally increase the crop area and the consumption of fertilizers. However, if the lockdown persists, there may be a reduction in cropping area due to the unavailability of labour and agribusiness inputs as well as logistical challenges and limited capital for inputs (also due to lower remittances as workers return from cities). This shows the importance of having access to and relations in various parts of the country. Bayer recently joined hands with Pune-based e-commerce firm for farm inputs ‘AgroStar’ for home delivery of seeds and crop protection products in Central, Northern and Western India.

Support schemes and food security

With a history of famines still fresh in the minds of many Indian policy makers, food supply remains a major concern for the government. Over the last 40 days, there were sufficient food reserves and food prices did not shoot up drastically. Most people who did not have any earning were able to get food. The government via the National Food Security Act and Public Distribution System has assured additional food grains for 3 months to around 800 million beneficiaries, although reaching all beneficiaries is a challenge. Farmers also receive some financial support. This is also important as farmers and rural labourers have a high marginal propensity to consume. However, most Indian states witnessed a decline in revenue of between 30 to 60 percent for March, and many states are borrowing from bonds market.

No force on earth can stop an idea when its time has come

This saying by Victor Hugo characterizes some developments in the Indian agriculture sector since the lockdown started. Following COVID19, India has accelerated (digital) innovations such as the eNAM (electronic National Agriculture Market); a pan-India electronic trading platform for farmers. The government plans to connect all markets to the platform in financial year 2021-22. The Indian government has also recommended that states suspend some provisions of the Agricultural Produce Marketing Committees Acts to encourage direct selling by farmers of crops rather than going to rural wholesale markets (‘mandis’). The government launched an app which helps farmers and traders find transport vehicles (‘uberization’ of farm produce transport). Online retailing accounted for less than 1 percent of total grocery sales in 2019, but has increased exponentially (although faced with the challenge of finding delivery staff). Facebook recently invested 5.7 billion dollars in India’s Reliance Jio Platforms, and considers linking WhatsApp (400 million users in India) to JioMart (a JV between Jio and India’s biggest retail chain Reliance Retail).

The lockdown was expected to lead to a change in cropping practices. For example, the Punjab government encouraged it’s farmers to shift to maize and cotton instead of the labour-intensive paddy rice, as migratory labourers have returned to their home states. However, the sowing of summer crops seems to have started well, with 38 percent more rice acreage than last year and 61 percent more acreage for pulses. The Punjab government will also provide a subsidy of up to 50 percent on purchase of paddy/maize sowing machinery to save groundwater and help farmers deal with labour scarcity. States in northwest India are trying to dissuade the farmers from burning agricultural waste, as it would make recovery of COVID patients more difficult.

Conclusion

Time will tell how the Indian economy will be impacted by COVID19 and the measures taken. Projections range from 3 percent growth to a contraction of 0.4 percent. It is expected that India will remain among the world’s fastest growing economies. According to Nielsen India, urban Indian consumers are likely to cut spending on discretionary items (restaurants, luxury brands, etc.) in the coming months but spending will increase on organic food and fitness. Consumers are expected to increasingly demand safety-branded food, and buy animal proteins from the organized sector rather than wet markets. Ready to eat / easy to cook products will also become popular, as out of home consumption will be restricted. An increase in demand for meals at your doorstep means platforms such as Swiggy will increasingly look for good quality semi-cooked foods. Packaging is likely to adapt to smaller households and convenience products. This is the time to present solutions that connect farmers to consumers (as over half of the rural markets are shut) and to labourers or (small-scale, affordable) machines.

It is anybody’s guess what the post-COVID world will look like. Will supply chain models shift from Just in Time to Just in Case? What will be the impact on global trade of agro–commodities? What is clear, is that we are all connected. As Dr. Martin Luther King once said: “We are caught in an inescapable network of mutuality, tied in a single garment of destiny. Whatever affects one, directly affects all”. In times to come, we will understand more about the global impact of COVID19.

Would you like to share your views on the post-COVID19 world, especially as it relates to food production in India? Please contact the Agriculture Team at NDE-LNV@minbuza.nl.