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Maharashtra’s monopoly cotton procurement scheme at crossroads

The Maharashtra government’s monopoly cotton procurement scheme which has been in operation for about three decades now has not only benefitted tremendously cotton cultivators in the state, but also the cotton economy of the country as a whole, though critics have continued to attack the scheme mostly from their narrow considerations.

This explains why cotton cultivators, either in the state or in the country have never objected to the continuance of the scheme, though some other interests have been pressing the authorities for its abolition.

The benefit to the state’s cotton economy and to its cultivators are quite visible. Despite lack of irrigation facilities, cotton production in the state has continued to rise, largely because of the scheme. If one looks at the benefits obtained by cotton cultivators in the state, they are too visible to be ignored. For instance, even when, as in the current season, seed cotton prices in various other areas touched the minimum support prices (MSP) fixed by the Union government and in several cases cotton growers were forced to sell their produce elsewhere even below MSP, cultivators in Maharashtra were able to realise much better prices for their produce even in such a difficult year, as the state-determined guaranteed prices were far more favourable to them than the MSP.

Cotton growers in other parts of the country have also continued to benefit from this scheme, albeit indirectly. It is a well known fact that the prices of agricultural commodities tend to nosedive at the commencement of the harvesting time when arrivals are brisk, unless there is some mechanism to absorb these at least for the time being. This mechanism is provided by the cotton monopoly procurement scheme of the Maharashtra government which is being operated by the Maharashtra Co-operative Cotton growers Marketing Federation (Mahafed) as cotton cultivators in the state are under a legal obligation to sell their entire seed cotton production to Mahafed and certain other eligible entities within the state.

This prevents the pressure of the state’s large crop falling on other markets in the country. Maharashtra is an early producer of cotton. If its crop were freely moving into other markets that could have led to a collapse in prices every where. Looking at from this angle, the scheme is indirectly proving beneficial to cotton growers.

The moot point is that as to why trade is not allowed to participate in the scheme, even if they are prepared to pay for their purchases at guaranteed prices. There is no logical justification for keeping them out of the operation. On the other hand if the trade is allowed to function under the scheme, as mills and ginneries are now allowed, that may help in reducing the load that falls on the Mahafed particularly when the outside market conditions are weak. Of course, the scheme has been gradually relaxed. It would be in the fitness of things that this process is extended to the cotton trade as well.

However, the scheme is not totally flawless. The present practice to fix guaranteed prices on ad hoc basis at arbitrary levels, has involved the Mahafed in huge losses, making the operation of the scheme very difficult and cumbersome, particularly when market conditions are depressed, and it is not very easy for the Mahafed to sell off its purchases in the market except at losses.

If the scheme is to run smoothly without placing either on the Mahafed or the state government for operating the scheme. The guaranteed prices payable to farmers should be fixed on some reasonable basis. In the past, it has been the practice for the political party in the opposition to demand fancy guaranteed prices to woo cotton growers. The party in power had then to accede to unreasonably high prices. This makes it difficult to raise the necessary resources to sustain it.

So far as the ensuing season is concerned, the state government has not so far clearly stated what will be its assured prices for the next season. It is obvious that unless they are reasonable, it can be increasingly difficult to sustain the scheme, as wool growers in Australia learnt this for a very heavy cost when their price support scheme had to be scrapped as stocks with the wool purchase board reached abnormal levels and it was no longer able to finance further purchases.

If the scheme is to run smoothly, till some better alternative is evolved, the authorities may do well to keep certain things in mind. The practice of fixing prices on an ad hoc basis at levels much higher the MSP and the prevailing market should be abandoned as it is bound to create problems. However, the state government can offer, say about 10 per cent or so, higher prices than the MSP. Alternatively, the growers may be initially paid only MSP rates and and they may be given a share from the profits made by the procuring agency. In this case, however, procurement may however, have to be restricted to a single agency, as it may not be possible to get back from mills and ginning factories the amount to be distributed as bonus. It is for the government to decide as to how to run its scheme smoothly.

-M D Dewani