Will Agri Commodity prices get affected due to Lockdown Restrictions & Third Wave of Covid-19?

The COVID-19 pandemic has disrupted the Indian agricultural system extensively, yet there is a silver lining in the Agriculture sector. The recent quarterly GDP estimates post-COVID scenario reflecting robustness and expansion of the Indian agriculture. The situation of Covid crisis started improving during later part of 2020 and the improvement continued till March 2021. While the situation was not so concerning in other nations, it was the second wave that increased India’s concerns April onwards.

The country was again placed under the control mission, as the lockdown restrictions tightened. Experts and government reports indicate that the second wave might end in next few months and likelihood of the third wave of Corona outbreak still remains high. This prompts us to understand how the Agri commodity demand and prices will get affected in near future. Well the estimates show that this is the only sector to register a positive growth of 3.4% during the financial year (FY here after) 2020–21 (Quarter 1: April 2020 to June 2020).Overall, the share of agriculture in GDP had increased to 19.9 per cent in 2020-21 from 17.8 per cent in 2019-20. Survey findings indicate that the pandemic has affected production and marketing through constraints in labor and logistical constraints, while adverse impact on the overall income restricted access to markets.

Yet consumption of the Agricultural products was stable and continued improving due to increasing tendency amongst the Centre and state government in maintaining sufficient buffer to meet the domestic requirements against the pandemic influenced supply disruptions. As a result prices of food commodities had increased significantly from the March/April lows and till date the price direction has been upwards. We had seen the governments announcing a raft of measures and long-pending reforms, aimed at attaining self-sufficiency in agricultural production, apart from providing higher income for the growers or farmers. It is clear that the Agricultural sector shall continue receiving attention from the policy makers moving forward.  

Maintaining adequate food reserves by different nations will be a key theme for year 2021. The return of China as a major demand driver for agricultural commodities will be a factor to watch this year and various reports indicate that China’s consumption is set to improve further. One should also note that various countries have rolled out long-term plans to create strong food reserves against supply chain disruptions due to the Covid crisis. India has been able to reasonable quantum of food grains for the 2020-2021 season, since the planted area had increased year on year.

Government’s efforts helped the country to harvest record crop area. Similar trend is expected this year as well. As production is adversely impacted in other countries because of the pandemic challenges, it will be possible for India to supply to the production deficit nations, whenever requirements emerge. Eventually, it will result in better prices for domestic agricultural commodities also contributing in the nations GDP. 

Speaking conclusively, demand for the agricultural commodities may remain stable to robust in upcoming months and price direction is most likely to remain upwards. The final consumers shall have to spend relatively higher than previous year but whole sellers, retailers and farmers will be able to obtain decent returns from their produce/stocks. In the longer run, demand will return to the pre-Covid level, once the situation normalizes because it will then lead to re-opening of hotels/restaurants, increase in public ceremonies, household gatherings etc. All in all, the Agri business segment shall continue improving, irrespective of the pandemic related challenges, with average price levels of food commodities holding much above previous year’s average values.