The Hindu Business Line : Cotton deserves no fetters

The country’s cotton textile industry may be aggrieved by the high raw material (cotton) prices; but its demand for the imposition of an outright ban or tight restrictions on raw cotton exports is unjustified on more than one count. Admittedly, the fibre forms a large part of the industry’s raw material cost, and availability of quality cotton has a bearing on the supply and prices of the finished products. In addition to rising operational costs, a firm rupee (until about three months ago) added to the industry’s woes, hurting its bottom-line. Yet, the textile sector is unreasonable in expecting cotton growers to sell their produce only to domestic mills. Large-scale exports of a total production of over 310 lakh bales in the 2007-08 season caused market prices of cotton to spike sharply. Indian traders have done a commendable job of identifying and shipping out over 80 lakh bales so far this season, getting the growers remunerative prices. Indeed, buoyed by the higher output of the last three years, cotton growers across the country are absolutely enthusiastic about producing more.

Cotton is perhaps the only major field crop that has registered healthy growth in recent years, thanks to higher prices and ready offtake. Incidentally, the current year is also the third in a row of sustained demand for Indian cotton in overseas markets. It may be no exaggeration to assert ‘Indian cotton has arrived’ in the global marketplace, though there is considerable scope to improve upon the performance by addressing logistics issues and raising the unit value realisation. Conditions are right for a further increase in cotton output to over 330 lakh bales in the 2008-09 season, planting for which has commenced now. The US, the world’s major exporter, is expected to face a lower export surplus, while China (world’s largest producer, importer and consumer) may need more of the fibre to meet its burgeoning internal demand. So, any restriction on export, as suggested by the mills, would go against the interest of cotton growers who are seeing good prices after languishing for long years.

The domestic mills must explore rational options. Instead of seeking restrictions on export, they must establish backward linkages, facilitating production of the cotton they need. Contract farming is a sure method of enjoying captive raw material supplies. The mills have so far shied away from this simple and logical approach; they need to change their mindset. There is global consensus that farm goods prices are likely to stay at elevated levels in the coming years because of higher production costs, in addition to the challenges of land constraints, water scarcity and climate change, on the one hand, and rising consumption demand (especially in Asia), on the other. Under such circumstances, contract farming not only makes commercial sense for the mills, but will also help them discharge their corporate social responsibility by contributing to rural transformation.

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