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Indian cotton cultivators losses estimated at Rs 8000-10,000 cr

M D Dewani

No doubt, cotton production in the country reached a historic high in 2004-05. But the huge amounts estimated at Rs 8,000-10,000 crores by some experts, were snatched away form the hands of poor cotton cultivators as prices fell sharply and the Union government failed to take effective steps to safeguard their interests.

Had the government taken timely and effective measures, the Indian farmers' woes could have been certainly reduced, even if not avoided altogether. Surprisingly, however, the government continued the policy of helping foreign farmers to export their cotton to India even when domestic farmers were badly hurt by falling prices on account of massive production in the country as well as elsewhere.

The Union finance ministry surprisingly turned down the demand voiced by some domestic growers as well as certain cotton growing states to raise the import duty to 40 per cent from 10 per cent. Even more surprising was the fact that even the Union agriculture ministry did practically nothing to run to the rescue of Indian farmers.

Indian Cotton cultivator's woes are unlikely to end soon. This is because the current season is expected to end with historic unwieldy stock of about 65-67 lakh bales and there are as yet no indications of any re-thinking on the part of the government with regard to the important policy that continues to help foreign cotton cultivators at the cost of domestic farmers. The current cotton season will come to an end in less than a month in abroad and in India in less than three months. It might, therefore, be interesting to have a hurried view of the developments that impacted cotton this season and the lessons flowing from them. In 2003-04, India had produced 177 lakh bales of cotton. But the crop in 2004-05, even before the actual start of the season, was expected to be much bigger in view of nearly 14 per cent increase in acreage, favorable weather conditions, use of better seeds including Bt, and virtual absence of pests and diseases that normally affect the cotton crop.

Taking these factors into consideration, the Cotton Advisory Board (CAB) had at its first meeting for the season held on November 22, 2004, placed its crop estimate at 213 lakh bales and revised it sharply upward to 232 lakh bales on March 22, 2005. Some trade circles are now inclined to place their estimate of crop at around 240 lakh bales. While cotton production in India thus reached an all time high, global production too rose sharply to nearly 261 lakh tonnes with a jump of about 26 per cent over the previous year. On the other hand, global consumption was estimated to rise by just about 9 per cent, indicating a situation of glut. The current season is thus expected with a huge end stock of 105 lakh tonnes. In view of this, international prices of cotton (Cotlook "A") plummeted 30 per cent between May and December 2004, while Indian prices crashed 36 per cent between July 2004 and January 2005. Domestic cotton growers were deprived of huge amounts estimated at Rs 8,000-10,000 crores, as the government remained more or less indifferent to their woes.

Of course, a meeting between the Union agriculture ministry and textile ministry decided on October 21, 2004 to start immediately price support operation and export 20 lakh bales of cotton, but no decision was taken for at least another two months on export subsidy, while the demand for stepping up the import duty to 40 per cent from 10 per cent voiced by cotton growers as well some state governments was thrown away. Under this situation, it is doubtful as to whether the country would be able to actually ship even half of the proposed exports of 20 lakh bales.

Even the price support operations in certain parts of the country remained weak, except in Maharashtra where Mahafed was reported to have picked up nearly 95 per cent of the arrivals. Elsewhere, growers were often forced to liquidate their produce at well below support prices. Surprisingly, the Union government refused to learn from how China or the US assisted their cotton growers.

China continues to import cotton to the extent of shortfall between its own production and requirement. Also, it has given an undertaking to the WTO to allow imports of 8.94 lakh tonnes at a nominal import duty of one per cent. But, it needed additional imports of nearly 14 lakh tonnes. Import duty on this was fixed at a fluctuating rate of 5 to 40 per cent up to December 2005. Furthermore, China fixed for these imports a minimum price of 55 cents per lb (about Rs 55 per kg). Thus it took adequate steps to thwart cheap imports.

So far as the US is concerned it stepped up the export subsidy for its Pima cotton from 30 cents (Rs 30 per kg, approximately) to 80 cents per lb (about Rs 80 per kg). The US government continued to restrict cotton imports, while the Indian government not only removed import restrictions but also maintained import duty at ridiculously low level of 10 per cent to help foreign cotton growers in exporting their cotton to India at the cost of domestic farmers. Unfortunately for Indian farmers no one seriously questioned such dubious policy.