Fairval

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Archive for the ‘Agriculture’ Category

UP’s buffalo beef production surged under SP/UPA

Posted by fairval on March 27, 2017

The new UP chief minister Yogi Adityanath is cracking down on illegally run buffalo slaughterhouses, and this has understandably created a lot of media noise. But that is what it has been, a lot of noise, very little analysis.

Data shows that buffalo beef production has surged sharply in India over last 7-8 years, and UP has been the main growth driver.

Buffalo2

In states other than UP, buffalo beef production grew at 9% CAGR over FY09-16. In UP it grew 22%, lifting all India average as well. UP now produces more than all the other states put together.

It would be good to know why exactly UP is such a stand out performer.Was this due to some good policies of SP/UPA?

Also, this must be data from just legal slaughterhouses, since this is government data. UP has 38 government-approved abattoirs according to media data, out of a national total of 72. In addition to the legal 38, it appears there are an illegal 140 in UP alone. They must be smaller than the legal ones, however, no one seems to have any clue of how much they produce.

Interestingly, it is buffalo beef which has surged in UP the most, not all meat classes. UPMeat

In UP, Poultry (the second largest meat category after buffalo beef) has grown at 7% CAGR in FY09-16. Goat and pig have interestingly shrunk, pig by as much as -8% CAGR.

Buffalo beef is mostly exported it seems. It would be good if the media went into the economics of the business is more detail; there are some interesting trends there which need analysis

 

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BT Cotton: A costly failure of Indian Agri Research?

Posted by fairval on June 8, 2014

Was going through some data on Nuziveedu Seeds and Kaveri Seeds, India’s 2 largest private sector seed companies. Kaveri is listed, and the stock has done phenomenally well. Its current market cap is around Rs 4500 crore, or $750mn. Kaveri went public in Sep’07, at a price of Rs 170 for a Rs 10 share. At current face value of Rs 2, this becomes Rs 34. The current share price is around Rs 650, or about 19x the IPO price, a return CAGR of 52% not counting dividends.

For both companies, BT Cotton is the biggest part of their revenue. For Kaveri, BT Cotton is around 55% of revenue. Its FY14 revenue was around Rs 1100 crore, so BT Cotton may have been around Rs 550 crore. Nuziveedu, i understand, is fairly identical to Kaveri in revenue mix. I haven’t seen FY14 revenue of NSL, but in FY13 it was about 40% larger than Kaveri.

Now the main issue. Both these companies (and there are a few others) are licensed by Monsanto. For this, they pay royalty to Monsanto. The royalty paid has averaged around 11% of the revenue for both companies in the last 3-4 years (so it could be 18-20% of BT Cotton sales). NSL paid a royalty of Rs 104 cr in FY13, while Kaveri paid Rs 114 crore in 1HFY14. (This works out to ~11% of their annual FY14 sales, so perhaps all the royalty goes in the first half.

Kaveri says it has 15% of BT Cotton market in India. This gives a sense of how much Monsanto could be earning from BT Cotton in India. Dividing Rs 114 crore by 0.15, we get Rs 760 crore or ~$125mn. So Monsanto could be earning $125mn from BT Cotton sales in ONE YEAR. 

That to me sounds like a seriously large figure. Why can’t  a R&D outfit of the Indian govt come up with some good variety of GM (genetically modified) cotton, if given sufficient funding? The institute are there. There is something called Indian Council for Agriculture Research (ICAR) which is the nodal govt body, under which there are several smaller outfits like Indian Agricultural Research Institute (IARI) commonly known as Pusa Institute. There is even something called Central Institute for Cotton Research, in Nagpur.

The government has to do it, because here does not look private sector is ready to do it yet. NSL and KSL are the 2 largest companies. They are quite profitable. KSL reported net profit of Rs 210 crore, NSL would be more than this. So it is not that these two companies don’t have the resources, but there seems to be no plan to spend much on R&D. Their annual R&D spends are in the Rs 7-8 crore. They are happy to pay royalties of over Rs 100 crore, but spend a fraction of that on R&D. It probably makes economic sense for them, they are very profitable despite paying large royalties.

If in situations like this government’s R&D will not step up, then when? If the government was to say spend even Rs 1000 crore on developing a better GM cotton, there would be larger collective good for Indian farmers.

Some quick google search seems to say that India lags in Agri research. An article says we spend 0.4% of Agri GDP on R&D, whereas China spends 0.5% and Brazil 1.8%. There are 167 public agencies which carry out agriculture research in India.

The budget for for the Department of Agricultural Research and Education, the R&D department of Ministry of Agriculture (ICAR comes under this department) was Rs 12,558 crore for the 11th plan, or about Rs 2500 crore per year. This is clearly too less. India should have spent Rs 500 crore just on cotton in the 11th plan, maybe we would have a GM cotton by now.

We are now in the 12th plan (2012-17). Found one planning commission document (for 12th plan) which says: India’s expenditure on agricultural R&D and education is currently about 0.6 per cent of the GDP from agriculture and allied activities and this definitely needs to be raised at least to 1.0 per cent. Could not find what was the final figure for the 12th plan.

Posted in Agriculture | Tagged: , , , , , , , , , , | 3 Comments »

Change in cropping patterns

Posted by fairval on February 27, 2014

This is similar to what was posted yesterday. Cropping focus is shifting away from food grains to horticulture (fruits + vegetables). This chart from a report by Jefferies shows change in area under cultivation. Total cultivated area hasn’t changed much in the same period.

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Fruits+Vegetable production now equals foodgrain production

Posted by fairval on February 26, 2014

Some excellent data from a Kotak report, which shows how horticulture production is now equal to stable food production. Foodgrain production has grown at a CAGR of around 2% over the last decade, while fruit and vege production is growing at almost 6%. This clearly shows changing food habits of Indians, and perhaps points to a need for cold chain, since fresh produce cant be stored in the same way food grains are stored.

Some tables

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As can be seen below, fruits and vegetables are growing much betterImage

In vegetables, potato remains the mainstay. Onion production has risen the fastest. Have no idea why. Surprised to see Brinjal is the biggest vegetable other than tomato-onions etc.  I thought most people dont eat Brinjals. Image

Fruits are all uniformly growing well. Banana and Mango are the two biggest ones. Imagetur

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Plantation valuations (think Karuturi, Ruchi Soya..)

Posted by fairval on April 17, 2013

Plantation is a new big thing for several Indian companies in agri commodity space. Floriculture company Karuturi was perhaps the first one to try to develop this business, when it acquired 11,000 hectares (ha) of land in Ethiopia. In 2009, it acquired another 300,000 ha in Ethiopia. It has a total land bank of 315,000 hectares in currently. Karuturi plans to grow maize, paddy and palm.

Edible oil co Ruchi Soya claims contract farming relationship over 185,000 ha, all in India, with 42,000ha planted as on Mar’12. Even smaller oil companies like JVL Agro now believe plantations is the way to go.

Why so? The reasons these companies cite: India is a big importer of oil. So important to secure supplies rather then being dependent. India imports over 9mn tons of oil, and this is growing. Ruchi Soya’s annual report says vertical integration into palm plantations will be the key goal to partially insulate against the short supplies and spiraling prices in the long run. Similar arguments could also apply to foodgrain, since  according to media reports, the world appears headed for food shortage.

However, share prices of any of these scrips have not benefitted from the move into plantations. Karuturi’s mcap is a mere Rs 280 crore or so (EV of about Rs 1000 crore), while Ruchi is around Rs 2300 crore (EV – Rs 8000 crore), that is mostly due to its existing large oil business. One good reason is the plantations have yet to show any result. Also, both companies are hardly transparent in their communcations, so there aren’t any details on what really is going on in their plantation initiative.

This brings us to the point of this post,can plantations make a big difference to these (or stocks like JVL) going forward? See the chart below:

EV per hectare of plantation cos

The chart shows EV/hectare for plantation cos. The range appears to go from $5K to 50K

Now, if we take a $10,000 per hectare, 100,000 hectares could support an EV of Rs 5000 crore (at Rs/$ = 50). Karuturi’s landbank theoretically is good for Rs 15000 crore plus, and Ruchi’s plot of 185000 ha could be good for EV of over Rs 9000 crore. Of course, both companies will likely incur a lot of cost in getting their land up to speed. Right now, there is no info on how much needs to be invested, and when will any returns come.

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What’s driving food inflation

Posted by fairval on July 18, 2010

Increase in MSP prices

Bad monsoon is the official reason for the runaway food grain inflation. This could be another one, increase in MSP. The average annual inflation in MSP is 10-15%.  It could well be that prevailing mandi prices are higher than this. MSP can often be an academic number if real inflation is there.

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