Rural demand to take a hit due to crashing crop prices, adverse climate conditions

Rural markets are critical for the overall sustenance of the sector

With prices of key crops going on a downward spiral and the unprecedented threat of crop damage due to untimely heat, rural demand which was slowly picking up is again facing a threat, according to executives of consumer goods companies.

Prices of potatoes and onions have fallen due to an increase in production. However, companies believe that risks owing to climate change are short-lived. Rural markets, which account for more than 35 per cent of annual FMCG sales, are critical for the overall sustenance of the sector. According to an ET report, the cost of staples, packaged food, fuel and packaging shot up over the last five-six quarters, with the rural demand suffering a bad hit.

“Crops which are currently under cultivation could be impacted, as there could be lower yields if temperatures rise further. This may lead to farmers’ incomes coming under stress, which could again negatively impact rural demand,” Mayank Shah, senior category head at Parle Products told ET.

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Wheat is the single largest input that accounts for more than 50 per cent of the total raw material cost for biscuit producers. Shah also told the publication that as wheat is being cultivated across different states of the country, it will be exposed to a range of varying temperatures, which the industry will have to keep an eye out for.

“We understand that rural consumption is expected to be under pressure if the heat wave pans out and there is severe damage to crops,” Director of Research at CRISIL Market Intelligence and Analytics, Pushan Sharma, was quoted by ET. He also added that a lot hangs on the temperature during the next 20 days.

Also Read | Farmers guard fields as threat of extreme weather looms

Meanwhile, owing to increased production in West Bengal and early harvest in Uttar Pradesh, potato prices suffered a crash of nearly 30 per cent in January. These states are accountable for half of India’s potato production. Onion prices have also crashed, putting the farmers in a state of worry as it will leave them with lower disposable incomes.

“The production cost of onion as per government agencies is Rs 8-9/kg, while the farmers are currently selling at Rs 4.50-6/kg,” Ajit Navale, general secretary (Maharashtra), All India Kisan Sabha was quoted as saying.