8 Important Reasons Why Agriculture Stocks Are In The Spotlight Prior To Budget 2023

Agri sector demands from Budget 2023

In the last few years, the Union budget has been largely agri friendly. From sharply higher minimum support prices (MSP) for farmers to liberal fertilizer subsidies, agriculture stocks had reasons to celebrate. When we talk of budget and stock market, one obvious question is what are the best fertilizer stocks and what are the best agriculture stocks to buy.

In this segment, we look at the budget impact on stock markets from the perspective of farm incomes and farm output. Of course, the focus would also be on the best agriculture stocks to buy, but for the actual names, you have to wait for the Union Budget.

8 Reasons Agri Stocks are in the limelight ahead of Budget 2023

The government had committed to double farm incomes by the year 2022. That may have been impacted by the pandemic, but one positive cannot be missed. Agricultural growth on an annualized basis has been consistently in the range of 3.5% to 4.0% in last few years, and that in itself is a great divergence from the past. Here are 8 reasons to be positive on agri stocks.

1) It is the high growth area for the Indian economy, apart from being consistent. It is estimated that India can generate over $800 billion of revenues by investing just about $270 billion into agriculture technology (Agritech). The government is most likely to use this budget as a launching pad to invest heavily in agriculture technology to make Indian agriculture more productive and ensure better yields per hectare.

2) The Indian agricultural sector has been undergoing a subtle shift from a traditional agri economy to a more modern agri economy. Firstly, farmer have been encouraged to take up other related activities like horticulture and livestock production. These will help the farmers to de-risk their revenue model. This is likely to get a boost in the current budget 2023. Secondly, food processing is already emerging as a billion dollar industry. Thanks to organized players in the food processing market, Indian food basket is increasingly moving towards organized and branded processed foods. This segment is likely to get incentives in the budget, including wider PLI, to give an indirect boost to agriculture.

3) Agricultural automation and formalization is one thing, but the ecosystem is another challenge. Budget 2023 is expected to focus on areas like the ease of doing business, a policy framework for technology support, incentives for technology adoption, building agri infrastructure and supply chain (like cold storages) to reduce wastage. Many of these infrastructure areas will see focus and also incentives.

4) Budget 2023 is likely to make a higher allocation to organic farming, smart proteins, floriculture, dairy production and also nutraceuticals. Genetic seeds have been an area of controversy but there is more heat than light in this area. Here the budget should work towards a clear policy framework for genetic seeds to boost output and yields.

5) In the past attempts have been made to provide farmers access to latest prices, production data and market details. With the rapid spread of broadband and smart phones, it is time to focus on 3 things. Firstly, it is time for a user friendly and local language portal for agri information. Secondly, farmers need a workable hedging and price locking mechanism. Thirdly, it is time to encourage global participation to import best practices in farm technology.

6) The budget must be about modernizing agricultural value chains. The budget must incentivize the use of artificial intelligence, machine learning, IOT, GIS technologies and the use of drones for fine tuning the agri value chain. The digital agriculture mission has been launched in 2021, but it is time for leveraging broadband better.

7) As part of the farm and food allocation, the Budget 2023 must focus on financial incentives for support infrastructure like irrigation facilities, logistics, micro cold storages, silo storage facilities. Government has to take the lead in ensuring that an IRR positive model is nurtured in these areas.

8) On the subject of fertilizer subsidies, the government is likely to form a committee to review input cost for fertilizers. Fertilizer industry has for long demanded revision in fixed cost of production. However, the fertilizer subsidy may come down from the FY23 allocation of over Rs2.2 trillion, but that would be used to bear additional fixed cost.

Overall, the Budget 2023 is likely to be a positive budget for the farm sector.