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G. Chandrashekhar

Instead of letting growers live in an artificial world of security, effort should be to make cotton production competitive by reducing production costs and improving quality.

Mumbai , Oct. 24

COTTON and sugarcane are Maharashtra's important commercial crops; but growers are far from happy, if recent media reports are anything to go by. There is demand for higher prices, not from farmers themselves, but from politicians. To demonstrate their support to growers, politicians seem to be vying with each other in raising their voice for higher prices.

Cotton: Contrary to the public stance of the Government that all is well with the State's farm sector, Maharashtra's Minister of State for Agriculture, Mr Rana Jagjit Singh Patil, recently conceded that the farm credit policy has failed and needs a review. A major reason for the spate of suicides by cotton farmers could be the pricing policy, he is reported to have said.

The Minister is expected to make out a case for an upward revision in cotton support price. Maharashtra is the only State in the country to have a cotton monopoly procurement scheme, an annual operation that causes the exchequer losses running to over Rs 1,000 crore.

May be counter-productive: While there can be no two opinions about giving growers remunerative prices, one needs to be clear about what constitutes a remunerative price.

It is unfortunate everyone talks about higher prices as if higher prices would automatically translate into higher incomes for growers. There is no guarantee that higher prices mean higher incomes.

Indeed, it may be counter-productive to artificially raise the price of cotton, without reference to domestic or international market. Higher prices unrelated to market conditions usually lull growers into a state of complacency. Instead of letting growers live in an artificial world of security (an unsustainable situation), effort should be to make cotton production competitive by reducing production costs and improving quality.

Insulated from market forces: Maharashtra's cotton farmers are already well supported in terms of price and ready market in the form of Government procurement. The price at which cotton is procured in Maharashtra is 20-25 per cent higher than the minimum support price (MSP) fixed by the Centre.

As a result of the monopoly procurement scheme, cotton growers in the State have been receiving prices considerably higher than their counterparts in other States; yet there is demand for even higher prices. This is an unsustainable situation because, given the State's fragile financial condition, it is unlikely to be able to sustain losses any more.

Rather than higher prices, Maharashtra's cotton sector needs several non-price initiatives. Currently, the area planted to cotton is about 30 lakh hectares and production is estimated at 53-55 lakh bales (170 kg).

Cotton output in the country has been rising for the last three years and for 2005-06 it is estimated at a record 255 lakh bales, up from last year's 232 lakh bales. Consumption requirement, on the other hand, is estimated at about 215-225 lakh bales, leaving a huge surplus.

Indeed, in recent seasons, Maharashtra's cotton farmers have been insulated from relatively lower cotton prices prevailing across the country following bumper harvests. The State pays a heavy price for providing this insulation.

For 2004-05, the losses on monopoly procurement were Rs 1,600 crore.

Crop diversification: Two issues that must seriously engage the policymakers are crop diversification and improving the efficiency of the marketing federation that undertakes procurement operation.

In order to reduce the governmental role in market intervention, reduce losses and wean farmers away from cotton, shifting of acreage from cotton to other crops is imperative. For this purpose, procurement should be restricted to areas where diversification may not be possible (for whatever reason, including agro-climatic conditions), while in other areas farmers should be encouraged to go in for alternatives, if need be through a system of incentives for a limited period of time. Political will is required to implement this.

In addition to reviewing the unsustainable pricing and procurement policy, the Government needs to closely scrutinise the operations of the Maharashtra cotton growers federation that undertakes monopoly procurement. Many believe there is tremendous scope for rationalising the operations of this procurement agency through improved supply chain management, including quality inspection and handling logistics.

Sugarcane: While the Maharashtra Government on its own volition purchases cotton at rates far above the general market price purportedly to protect growers' interest, in the case of sugarcane there is demand that cane growers should be given prices higher than what they are getting in the form of statutory minimum price (SMP).

The Government finds itself in the unenviable position of having to reconcile the conflicting interests of growers and consumers.

While growers are unhappy with low price for the produce, consumers are concerned about high sugar prices.

Several sugar mills in the State have availed themselves of the relief package offered by the National Bank for Agriculture and Rural Development (Nabard) and are therefore subject to the discipline of SMP. There is now demand from a group of politicians that cane growers must be given a substantial increase in the guarantee price because open market price of sugar has surged.

After two years of bad crop resulting from weather aberrations, Maharashtra' s cane crop has rebounded this year. Despite this, several mills are expected to remain dormant during the season for various reasons, including poor financial condition and poor management.

Holistic view needed: Again, instead of looking at the issue of cane price in isolation, policymakers have to take a holistic view of the sugar sector which needs reforms.

Mills in Maharashtra are fragmented and need consolidation of capacities in addition to more professional management. Uttar Pradesh has already started to challenge Maharashtra's dominance in the sugar sector.

Unfortunately, even the Central Government looks at reforms in the sugar sector from the Maharashtra State perspective. It is for this reason that the promise of total decontrol by October 2005 has not materialised.

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