Monday, June 29, 2009

Agriculture Sector – Food for Thought

“Like an ox-cart driver in monsoon season or the skipper of a grounded ship, one must sometimes go forward by going back.” John Barth

If one plough up this terrain as an investment avenue ,outcome would be a rich harvest . The vapid comments about the weather that have been the scorching the headlines for the last couple of weeks are bound to have a profound impression on the economy . The year 2009 so far has seen countries like China , Argentina , Africa, South America and the parts of US , which make up for the close to two third of the worlds agricultural output witness drought or drought like conditions. India with more than half of its of its population engaged in the agricultural sector is contributing appox 17-19% to the GDP . India is the seventh largest country in the world and have appox 43 % of its area under agriculture . It also accounts for 14 % of India’s exports .The delayed monsoon could definitely cast a shadow on the path of economic recovery apart from hampering the governments target of 4 % agricultural output .It would also be the cause of concern on the food security front .We had a great last food grain production season ,that would cater to any short term demand . It is a stark reality that our agriculture sector is predominantly rain fed thus it has no option but to bear the vagaries of the weather .The Kharif crops season runs from June till October end ,it is heavily dependent on the south west monsoon .The major Kharif crops are cereals , paddy ,Pulses , Soybean , maize ,millets, oilseeds etc .Food Grains have a weightage of 5 % in the a Whole sale price Index (WPI ) which is a measure of inflation in India. Though , WPI has moved in negative territory but the inflation in food grains prices in the index is a matter of concern .

The international prices of most of the commodities have been falling in 2009 , in comparison to their prices during the same period in 2008 .The benchmark Food and Agriculture Organization ( FAO ) Food Price Index though has been moving upwards for last three months; but it is still lower by 30 % from its peak in June 2008 .The FAO Food price index averaged 152 points in May 2009 . The increase in demand of agro commodities is proportionate to growth in population and per capita income (expected to grow by appox 14 % this fiscal ) . It has been observed that the food grain production rate is lower than annual rate of growth of population in India ; thus there would always be a tight demand and supply situation .The growth in foodgrain production has been falling significantly since 1990 . A glance at few commodities would give us the idea of the road ahead ; the poor rain in Assam and West Bengal has already affected the Tea production , coffee production in the regions of Karnataka has also taken a beating due to the similar reasons. . Tea and coffee prices remain firm in the India market . India is the worlds largest producer of tea .India’s Sugar demand is already being catered by permitting imports of sugar as there has been a shortfall of appox 7 million tonnes .Pulses are always in short supply due to huge consumption as it being the affordable source of protein .Rice - india have enough stock to control any kind of surge in prices . non basmati rice is also banned for exports ;though we would be shipping 2 million tonnes as aid to African countries .Cereal outputs is expected to see a slight decline in 2009 .Wheat ,Coarse grains , Oil seeds price are already on their way up . Agricultural food commodities price have seen a surge primarily due to lower global agricultural output ,diversion of agri commodities like Soybean, corn etc for generation of bio fuels , below average buffer stocks worldwide .As per the reports ; the India Food and Agri business market size in a decade would be in the region over USD 500 billion. There are opportunities existing in trading , production , warehousing , retailing ,logistics ,packaging ,processing etc which would fetch interest of many companies as well as entrepreneurs .This sector also influence the fortunes of companies engaged in fertilizers , farm equipments , pesticides and other allied industries .

India is emerging as an attractive destination for the Food processing industry .This sector has been growing at a steady rate of 14 % .The rapid urbanization generally causes a shift in consumption behaviour from cereals to other high value agri , dairy , live stock products ,packaged processes food .India is among the top producers of cereals, milk , sugar , fruits ,pulses , tea etc .Thus availability of raw material along with investor friendly policies have attracted leading global players to to tap the Indian Market both in terms of manufacturing as well as exports .Few of the stocks from food Processing , Rice, Oil Extraction industry , other allied industry such as KRBL , Kohinoor Foods , LT Overseas , Tasty Bites , Temptation Foods , Kothari , KS Oil , Agro Tech ,IVRCL Infra , kirloskar brother would make a good long term investment

This blog should not be construed as investment advice, either on behalf of particular stocks or in regard to overall investment strategies. It is a site aimed at understanding competitive advantages and valuing businesses. The information provided here comes from publicly accessible sources, but errors in these sources and in transcription may occur. Any investment decisions you make should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.


  1. LT overseas is Lakshmi Energy by any chance ?

  2. I like Lakshmi Energy and Temptation Foods interesting sector and fundamentally strong companies.

  3. LT Overseas is not Lakshmi energy I have already sent you an email with the details

  4. Laksmi Energy do remain invested ,excellent pick

    I would prefer REI Agro to Temptation Foods