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Maharashtra’s monopoly cotton procurement facing uncertainties

M D Dewani

Maharashtra’s monopoly cotton procurement scheme which promises remunerative prices to cotton growers in the state, may again face uncertainties, if one goes by the indications given out by the state government in the recent budget session of the assembly. The state government likes to review this loss-making scheme, even as the nature of the review remains unclear at present.

Basically such schemes are loss-making as they are intended to offer attractive prices to farmers for their produce. When prevailing prices for such produce are much lower in the market, such schemes cannot avoid losses. However, if the governments are determined to continue such pro-farmer programmes and their own finances are strong, they may be able to continue such schemes without any hindrance. For instance, the world’s two largest producers of cotton, China and the US both susidise their cotton farmers from the national exchequer. Cotton cultivators in countries like Greece, Spain, Egypt, Turkey, Mexico are also being supported by their governments.

So far as India is concerned, the Union government operates a minimum support price (MSP) scheme for cotton as also for several other agricultural commodities. Since, however, the minimum support prices fixed by the Union government for cotton have mostly been far lower than the prevailing market rates, it does not have to shoulder any burden to continue such a scheme in most of the years, except when the market prices dip even below such low centrally-fixed prices.

Of the nine major cotton-producing states in the country, only Maharashtra has been operating its own special scheme which promises to its cotton growers “guaranteed prices” which are not only much higher than the centrally-fixed support prices, but also higher, very often, than the prevailing market prices. If the Maharashtra State Co-operative Cotton Growers Marketing Federation (Mahafed) which operates this scheme makes any losses, these are made good by the state government. The situation becomes very difficult for the state when losses continue consecutively for more than two or three years.

For instance, as the state government’s own finances are not strong enough it is finding it difficult to shoulder its own responsibilities under the scheme. This is evident from the fact that the state government is yet to pay as on March 15, 2005 a total sum of Rs 3,600 crore to its cotton growers for cotton procured. The government indicated that as against these outstandings, it would pay about Rs 2,400 crore in the near future. No indications were available about payment of the balance amount.

The state government’s desire to review the scheme raises two important issues. Whether it can afford to give up this scheme and if that is not possible, what can be done to make timely payments to cotton cultivators under the scheme. It might be worth remembering that both Vidarbha and Marathwada districts which are major producers of cotton have got considerable voting strength as well. That explains as to why the party in opposition always plead for higher and higher procurement prices for cotton, hoping to win over voters in these regions. The party in power is seen succumbing to such tactics to prevent possible diversion of votes.

This year, however, since procurement prices payable to cotton farmers in the state are far higher than the Union government’s support prices, as well as the prevailing market prices, the opposition raised the issue of inordinate delay in payments. The fact that there have been unusual delays, cannot be denied by any one. This problem arises because of lack of adequate funds with the state government to support the scheme.

This problem arises basically from the fact that while the Mahafed has to accept deliveries of large quantities of cotton soon after the commencement of the season, it can sell the procured cotton only at a much later date. Huge funds thus remain tied up in unsold stocks. If the Union government takes steps to provide credit facilities to farmers’ cooperative organisations like the Mahafed to the extent of 75-80 per cent of the value of their stocks, they can make payments far more easily.

In other states which do not have any special schemes for cotton, the cultivators have to rush to the market to sell their produce when prices are depressed due to the brisk arrivals. When such arrivals abate a few months later, prices do look up but by that time cultivators might have parted with their produce. Some scheme is required to avoid such a situation as well, if the government is really keen to protect the farming community’s interests.