Cotton farmer Ravindra Krishna Patil in India s Maharashtra state should be feeling flush after strong monsoon rains and a good crop, but high costs have cast a pall over his preparations for the festive season.
Instead of splashing out on gold jewellery, appliances or maybe even a car during the biggest shopping season of the year, 28-year-old Patil must count his rupees after costs of everything from fuel to labour soared while cotton prices have fallen by nearly half. Producers of other major summer-sown crops such as rice, sugarcane, soya bean and maize also have to contend with falling prices and rising costs, which may ultimately contribute to crimping the growth of Asia s third-largest economy.
I have spent more money than last year, Patil said. The cost of seeds, fertilizers rose. Labour wages jumped, but my profit fell.
He said he spent about 400,000 rupees (US$8,107) for cultivating 16 acres of cotton, compared to 290,000 rupees a year ago.
Rising rural incomes have been a key driver of India s broader economic growth as well as revenues for makers of consumer products. The country expects to produce record food grains of 245 million tonnes in the current crop year to June, an increase of 1.4 per cent thanks to good monsoon rains.
Usually, a good monsoon and strong crop yields raise rural spending. Record output, however, is pushing down prices, and government minimum support prices have not risen in line with higher input costs.
Soybean futures prices have dropped 19 per cent from this year s peak, while corn and rubber have dropped 27 per cent and 13 per cent respectively, from year highs. Turmeric and cotton prices are at half their peak levels.
After months of delay, India in June raised the state-set price of diesel by nine per cent, lifting the cost of plowing, tilling and other land preparation operations for farmers.
A jump in fertilizer prices in the world market and a government move to ease its subsidy burden forced fertilizer makers to pass rising production costs to farmers.
What has hurt profitability most, farmers said, is rising wages for labourers, driven by government efforts to ensure a minimum level of paid work for rural households under its National Rural Employment Guarantee Act.
Farm labourers wages have gone up sharply. And even after paying higher wages there is no guarantee you will get workers, said George Valy, president of the Indian Rubber Dealers Federation. The biggest task for farmers is to find workers.
Daily wages for female farm workers in the Jalgaon area, where Patil farms cotton, have risen to 100 rupees this year from 75 rupees a year ago and for male farm workers to 200 rupees from 150 rupees. Overall, farm wages in the area have more than doubled over four years.
For farmers, labour cost is a dominant factor in production expenses and labour wages are going up. Labourers are demanding higher wages as they are also feeling the pinch of higher food and fuel inflation, said Ashwini Bansod, a senior analyst at MF Global Commodities India.
About 600 million Indians make a living from farming, even though agriculture makes up only 14.6 per cent of the economy, down from 30 per cent a decade ago.