Many boarders know management well. Do you think they will use this to expand market share in Maharashtra or fight with the govt?. Do you think this decision will have no impact as most of the seed is already sold to dealers?
number of bt cotton seed packets kscl sells in MH is a small % of its total sales and will no impact profits materially. it affects its growth plans though. As management said in concall if the price is reduced, the seeds will go where the price is higher. This effectively means that bolgard-2 seeds (most sought after variety and where price reduction has happened in MH) will probably be withdrawn from MH dealers. MH farmers then will have to travel to bordering states to buy bogard-2 seeds! (effectively increasing their cost) or dealers may surreptiously sell underground stock at 'ON" with cash component. govt is making life for farmers further miserable. i am sure if the seed companies use ‘game theory’, they will withdraw their bg-2 seeds from MH and divert them to bordering areas of other states. due to delayed monsoon, most of the seeds are yet to be sold. Boarders in touch with dealers may corroborate this…
I would not get distracted by this kind of news as this noises are regular feature pre monsoon like last year. I would rather focus on Kaveri management recent commentary during con call. They expect increase in acreage during current year in south where they are dominant and have strong hold. As far as reduction in price in Maharashtra is concerned the impact would be minimal on overall margins and profitability as they mentioned that they would divert their sale to other states.
Thanks Ishan for bringing this important issue up.
While it is addressed to Ishan, this is for the consumption of all newcomers tracking/invested in Kaveri Seeds
I remain invested fully in Kaveri.
Do not get swayed by media reports so easily. If you track the history of such reports over past 3 years in this thread itself - you will see that 80% of the time you will get it wrong if you go only by the reports
If monsoons play truant, cotton is a crop that benefits the most, as it needs only a few brief showers. There are many regions in Maharashtra, AP (the largest markets for cotton seeds) where there is no alternative crop
In times of stress, it is the smaller players who face the music the most - especially those who have lots of piled up inventory accummulated over 2-3 years or more - they will liquidate stocks at any cost
The premium hybrid seeds in demand - folks like Kaveri - stand to benefit from the stressful situation. Farmer still wants the best hybrids for himself
Banning sale or forcing reduced price sell hasn’t dampened sales of premium in demand hybrids in the past. Sometimes it works to their favour - as cross-border sales become rampant
Having said all that, we do not know what will happen. Things can go wrong for Kaveri too. I am willing to take that risk - despite not having the time this time to drive scuttlebutt efforts in AP & Maharashtra - as I have got busier with another passion - rural education for the underprivileged.
Disc: Invested from over 3 years; haven’t reduced holdings
@gaurav12123 - could you provide an update on on-the-ground situation at Beed, Jalna districts of Maharashtra. And collate for rest of Maharshtra too as possible, please
@OM_1417 could you do the same for AP/Telengana regions, please
Information from dealers/distributors in AP
by the time of regulation most of the premium seed companies sold forty percent of total quantity . Lower inventory situation along with this Price cap will lead to lower allocations to Maharashtra . Dealers anticipate almost same volume of last year . Dealers expect a tougher year - as the companies may naturally reduce commissions to distributors/ dealers . As per dealers, this year companies are focusing more on Cash collection. Volumes may be maintained or slightly better in Andhra Pradesh .As monsoon progresses more details may emerge .This is all about Ground situation.
Having said this however Market’s main worry is not only about Maharashtra government regulation but if any other states follow similar path then? Governments too much worry on Seed cost (Five percent of total cost ) is really a big concern by leaving spurious pesticide segment which is ten times bigger market than seeds .In one state where company located , government notified to pay only 50 rupees royalty to Monsanto and now the matter is in courts .
I think that the whole issue of monsoons and price reduction in Maharashtra has been over blown.
If we look at the Met departments record of predicting rainfall, it has been mediocre at best if not abysmal. An 88% prediction for a country as large as India with very little information on spatial distribution , in my opinion has very less meaning.
Also, it is easily assumed that the farmer has one or two back up crops if the monsoon prediction is for a higher or lower rainfall. In reality a farmer is adept at growing a crop and he or she sticks with it to a very large degree. It is in very rare circumstances that they switch. The best example is that of sugar cane farmers in western UP. Before they even sow the crop, they know that they will have delayed payments from the mills. This saga has been going on for years and still the sugar cane production is higher every year. Thousands of crores of payments are pending. The farmers still continue with sugar cane as they have done it for years and are not comfortable with other crops. Sugar cane has one of the highest returns in that belt despite the delayed payments. Cotton is the same. It has the highest returns for farmers who have been growing it for years and are adept at doing it.
On price reduction we should attribute higher intelligence to the farmers. At Rs 100 reduction in price per packet and someone using 1.6 packets per acre, saves Rs 160 per acre. Seed quality and familiarity of the farmer with the seed is the single biggest factor that determines the yield. Of course water and other inputs matter but a farmer will spend this extra Rs 160 in trying to control what he surely can that is buying the seed that he is comfortable with.
Harsh industry environments from time to time are very important in any industry as it leads to the death of the fringe players and leads to consolidation. A consolidated industry structure is very important to drive higher return on capital in the long term.
Some of us who are invested in Kaveri seeds for the long term welcome this harsh environment as this is good for the surviving players in the long term.
Any long term investment , we need to worry only when there is a ebitda de-growth. It is safer to get out and then re-enter later. This strategy I use for all my LT investments. It may look laughable but as a retail investor we are not privy to all that is happening in industry or in the company. Sometimes, the bias will fool us to look/analyse things that have changed.
In KSCL, i have not seen any ebitda degrowth so far and we can confirm the same when they announce June qtr results as it is a very important qtr for them. I exited 2 investments Sriram Transport and Suven on this principle of ebitda de-growth.
Technicaly also you can confirm, but I will not venture into that in this forum.
Posted elsewhere under a wrong head corrected now.
Found this article in a Marathi newspaper today (18th June), but unable to trace it on other English sites.
It briefly reads/translates as follows :
Nagpur bench of Mumbai High Court has rejected a petition by Seeds Industries Association filed against Maha Govt on reduction of cotton bt seeds packets
The Hournable Court has noted that looking at the draught situation and farmers suicides, the Govt has taken this decision and it is well within its rights to do so.
If other State Govts take clue from this, it could spell trouble for the industry.
Some key points fromthe news item appeared in The Hindu today
Annual suicide rates of farmers in rain-fed areas are directly related to increase in Bt Cotton adoption.
Suicide decreases with increasing farm size and yield but increase with the area under Bt Cotton.
The study is significant for 2 reasons. 1)Most cotton Cultivation in India is rain fed . 2) Between 2002-2010, the adoption of Bt Cotton Hybrid went up significantly to 86% to total cultivated area of Cotton in India.
Though cultivating Bt Cotton variety may be economic in irrigated areas , the costs of seed and insecticide increase the risk of farmer bankruptcy in low yield rain-fed settings.
The study challenges the common assumption in economic analyses that cotton pests must be controlled to prevent monetary losses thus encouraging Bt cotton adoption.
The annual emergence of the key cotton pest pink bollworm in spring is poorly timed to attack rain-fed cooton and large populations of pest fail to develop in non-Bt rain fed cotton. This reduces the need for Bt Cotton and disruptive insecticides.
The authors recommed that high density short season cotton could increase yields and reduce input costs in irrigated and raid fed cotton.
India is second largest country cultivating Bt Cotton and this study disproves the earlier studies which showed yield from Bt Cotton grown 19% over time.
If these finding are true and people beleive this , negative for KSCL and Monsanto. There may not be immediate reaction but negative for long term.
Please comment about how seriously we can take this study done by reputed scientists.