The Hindu Business Line : Cotton on to success

Cotton has turned out to be an incredibly good performer in an otherwise uninspiring spell by the country’s agricultural sector. The crop’s success can be measured from the fact that production in the last five years has increased by a whopping 80 per cent (from 170 lakh bales in 2002 to over 300 lakh bales in 2007). That makes India the world’s second largest producer after China, relegating the US to third position. More heartening is the turnaround on the foreign trade front. From being an importer of 20 lakh bales to meet domestic shortfalls, India is now an exporter of 50-60 lakh bales; no wonder, today, there is heightened awareness about Indian cotton among global market participants. Cotton growers deserve praise for enthusiastically adopting the new seed technology and raising production without subsidies. Interestingly, growers are the major beneficiaries of higher production because of the steadily improving yields and rising export demand. World cotton market has decidedly turned producer-friendly. However, for India to consolidate its position in the world market, further improvement in cotton quality, adoption of modern testing methods and attention to infrastructure/logistics issues are necessary.

Amid this generally positive scenario, domestic textile mills have raised concern about cotton prices. Despite rising output, the domestic cotton market has stayed firm because of exports. Mills are upset because of what they see as a double jeopardy — appreciating rupee and firm raw material prices. The mills’ concerns may be justified but not the proffered solution. There are attempts — subtle and otherwise — to persuade the government to impose restrictions on cotton exports. Policymakers should not succumb to lobby pressure that could tinker with a liberal trade policy. A collapse of cotton prices is the last thing the country’s agricultural sector needs. Nothing should be done to reverse the rising fortunes of cotton growers. As primary producers, they should be allowed to sell to any market — domestic or overseas — that gives them the best return. Going by demand-supply fundamentals, there is absolutely no shortage of cotton in the country; it is only that prices are not to the mills’ liking.

Mills, however, have options open. Raw cotton imports are under open general licence; and for export production, there is the duty exemption scheme. Importantly, no longer can mills take raw material availability for granted. They need to establish backward linkages with growers and improve their supply chain management to cut costs. In their own enlightened self-interest and as part of corporate social responsibility, mills owe a duty to support cotton growers, most of whom are small and marginal. The very fact that the country is in a position to export shows that Indian cotton prices are lower than world prices. There is no reason why domestic textile mills should be displeased with this.

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