Cotton support prices are too high

It is important that support prices of farm products are constantly reviewed in the light of the increasing costs of production and adjusted periodically. It is most important to fix prices that make agriculture an activity of choice, and not one that is undertaken when no better alternative exists.

GENERAL PRINCIPLES

However, it is equally important to:

— balance the needs of the farmers, without making farm products too expensive for users;

— balance the relative profitability of different crops in order to ensure that all crops are produced as per the needs of the people of India, and not based on skewed support prices;

— if at all there is to be a farmer bias in fixing the support prices, it should be restricted to industrial raw materials and not be done in the case of food, as that would spur further food inflation;

— However, the farmer bias towards industrial raw material should not distort the crop preference away from food altogether, and therefore, a fine balance needs to be maintained.

The increase in production costs would be directly proportional to the crops' inability to lend itself to mechanisation and the labour content in operations. The highest cost increase has taken place in the case of labour, after the introduction of MGNREGA. Its impact on all crops needs to be factored into the fixation of support prices.

HIGH SUPPORT PRICES

In 2008, cotton support prices for medium staple kapas varieties were raised by over 38 per cent. This was done as a pre-election move, without any in-depth study of costs of cultivation or its relative profitability. Later, cotton support prices were raised by another 10 per cent in 2011, at the beginning of the crop year.

These increases did not impact the government or mills, as support prices have by and large remained below international prices, except after the global financial crisis when prices of all commodities crashed by more than 50 per cent. However, the high support prices have certainly led to conversion of acreage under food to that under cotton.

This shift from food to cotton occurred even in 2009 when the total acreage of cultivated land shrank due to drought. Interestingly, this was despite the fact that farmers received only support prices that year, as the international market had collapsed. This clearly shows that cotton, even at support prices, is the most profitable crop for farmers in India.

During the crop year 2010-11, international cotton prices touched record highs due to the worst global shortage of cotton in recent history. Indian farmers were able to sell their cotton at double the support prices.

The situation is returning to normal levels this year. There is a record crop the world over. This naturally reflects in domestic seed cotton prices as well. Farmers who reaped a once-in-a-lifetime bonanza, and are expecting the same to continue, are disappointed and are agitating for higher prices.

It is our responsibility, more so the political leadership, to educate farmers about the reality and point out to them that even today at support prices cotton farming is far more financially rewarding than other crops.

It seems from media reports that this is not happening. Some sections of our political leadership are looking at the populist option of recommending higher support prices once again, without going through the due process of checking the relative profitability of cotton, which still continues to top the charts.

We should not adopt these soft options to win popularity, and create an unsustainable cotton economy which cannot in the long run be supported by subsidies to the procurement agency or the user industry (if we want the user industry to exist).

We are diverting creative energies and land away from food for the wrong reasons.

(The author is CMD, Loyal Textile Mills.)

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