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Expectations for another normal monsoon in 2011 bolster our outlook for healthy crop production for 2010/11 and 2011/12 for certain crops. This should also help ease food price inflation concerns, an issue which took center stage in Q410 and early 2011. Crops that should benefit the most are sugar, rice and wheat. In fact, the lifting of export bans for sugar, cotton and possibly, wheat in the near term indicate abundant domestic supplies for these crops.
In the longer term, although the government has laid down plans to improve efficiencies in the agricultural sector, we are not confident that these efforts will translate into significant gains in production across the board given the unconsolidated nature of the industry and also poor infrastructure. For example, we see the country becoming a net importer of poultry by 2014/15.
- Coffee production growth to 2014/15: 117.7% to 5.6mn bags. This increase will come from growing consumption and also more private investment into the sector.
- Milk consumption growth to 2015: 30.3% to 59.2mn tonnes. With a growing middle class and rising incomes, we expect demand growth for milk to be strong over our forecast period.
- Corn production growth to 2014/15: 36.7% to 22.7mn tonnes. Production growth will be driven by increasing demand for feed from the livestock sector, as rising incomes allow Indian consumers to eat more meat, especially poultry but also buffalo meat, for which consumption is also increasing.
- 2011 Real GDP Growth: 7.8% (down from 8.6% in 2010; predicted to average 7.9% from 2011 until 2015).
- Consumer Price Inflation: 10.0% average in 2011 (down from 12.4% y-o-y average in 2010).
We believe that there is significant upside potential for the Indian coffee industry on the back of recent investments into the sector. Major coffee companies such as Lavazza, Starbucks andTata Coffee have also started to significantly expand into the Indian coffee sector. Coffee and food consumption sales have risen 44.5% and 22.4% between 2005 and 2010 and we expect growth of 21.6% and 15.9% out to 2012 respectively. These robust figures bolster our bullish outlook for the sector overall.
India's dairy market size in value terms, including the organised and unorganised sector, is estimated at US$47.6bn and has been growing at nearly 7.5% annually. Presently, the country is still able to largely meet its domestic demand and is only marginally dependent on dairy imports. However, given the strong rate of consumption growth, which has been led in part by rising incomes, demand will soon outstrip supply, very likely causing India to become more dependent on imports. Already, we forecast the butter production balance to run into deficit in 2011/12.
BMI believes that the trend of a widening production deficit for palm oil is deeply entrenched and should ensure strong imports of the edible oil in the foreseeable future. While we note that CPO imports in January and February have come in below the 2007-2010 average, we believe that this is a seasonal trend and expect imports to pick up again in H211.
by S. C.
03 june 2011, World News > Asia