Financial Daily from THE HINDU group of publications
Friday, Dec 03, 2004

Cross Currency

Group Sites

Opinion - Editorial

The cotton calamity

PREDICTABLY, AT THE 63rd plenary of the International Cotton Advisory Committee (ICAC) in Mumbai, the common refrain among many Asian and African producing countries was the adverse fallout of acute market volatility on growers and, in the immediate context, precipitously declining global cotton prices. At the inaugural session, the Union Minister for Textiles, the Chief Minister of Maharashtra and the Deputy Chairman of the Planning Commission all lashed out at farm subsidies doled out by the rich nations. But it did not seem to cut any ice.

A significant increase in the global cotton output in 2004-05, including in India, has pushed the market down to unremunerative levels. Small and marginal farmers in Asia and Africa are badly affected. Funds also appear to be playing a major role in impacting futures prices. Speculators, with their superior knowledge of the market dynamics, are having a field day. With limited access to markets and price information, farmers in developing economies are bearing the brunt of the price collapse. India allots the world's largest area (close to 90 lakh hectares) to cotton, but its output level is ranked third (after China and the US) because of low yields — less than 400 kg per hectare against the global average of over 550 kg/ha. Inconsistent quality is another issue. Cotton growers have to tackle the vagaries not only of the weather but also of the marketplace and international trends. It is time policymakers cottoned on to the realities.

Technology and subsidy are the two drivers of cotton production and market prices. Infusion of technology, including genetic modification (GM), has surely benefited growers in developed countries such as the US. Whether GM technology is appropriate for an agrarian economy such as India given its farming conditions is a matter of debate; but there can be no argument against application of science in agriculture. What, however, deserves an international debate, especially at such forums as the ICAC plenary, is the issue of farm subsidies that distort the market and the playing field. The international cotton body has to take a clear stand on subsidies. The World Trade Organisation has ruled against cotton subsidies extended by the US. The ICAC can step up the pressure on developed countries to pare subsidies.

It may be politically correct to attack farm support by developed countries, but it would be futile to expect major changes in the subsidy regime any time soon. So, it is necessary that we put our house in order. Pubic investment in agriculture needs to be stepped up. Processors and users of cotton such as textile mills have to be attracted to establish backward linkages. Market reforms are necessary. The minimum support price regime should be largely linked to market conditions as a high and constantly rising MSP, though socially desirable and politically expedient, is not sustainable and has the effect of lulling farmers into complacency and insulating them from market realities. Capacity-building among farmers is the key. For now, to tide over the glut situation, the Government must encourage cotton exports, if need be by granting WTO-compatible cost reimbursements.

More Stories on : Editorial | Cotton

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section

The cotton calamity
Talk of court news: Who loses and who wins
Horizontal fiscal imbalances — Equity and efficacy options for transfers
South-South trade co-operation — India must further bloc ambitions
To fight common problems...
Create a regional forex corpus

Airport restructuring — Obstacles to a smooth take-off
The oil price riddle
Expertise in Tribunals
Growing tamarind

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line