Quick Take

Tangled web

| Updated on November 18, 2019

Last season, the CCI procured just 3 per cent of the country’s cotton output. File Photo   -  The Hindu

Ineffectual MSPs and ad-hoc market interventions have hamstrung the cotton economy

In what has become a familiar refrain across the agri-commodity sector, India’s cotton economy is today in a strange situation where none of the participants across the value chain are positive about their prospects.

Cotton farmers, who have been hit hard by unseasonal rains, have been lamenting the drop in domestic cotton prices to levels far below the promised Minimum Support Price. Only last week, farmers in Telangana agitated over receiving market prices of Rs 3,000-3,500 per quintal against the MSP of Rs 5,550. The Cotton Corporation of India (CCI), which recently restarted its procurement operations after wide-ranging farmer protests, has set itself ambitious procurement targets for the season. But it is a moot point if its purchases will influence market prices enough to lift them above MSP.

Last season, the CCI procured just 3 per cent of the country’s cotton output, making barely a dent on market prices. Its procurement operations also result in a significant build-up of inventories at its end, with no concrete strategy for their disposal. Amid these problems of plenty, cotton imports have continued to flood in unchecked and are estimated to double in the cotton year 2018-19 (October to September). Traders who engage in bulk exports meanwhile, are worried about ‘artificially high’ domestic prices hurting the competitiveness of Indian exporters. Numbers do support their claims, with India’s cotton yarn exports halving in value in the first six months of FY20, with rivals such as Bangladesh, Cambodia and Pakistan stealing a march over Indian exporters.

To top it all off, estimates of the FY20 cotton crop, which should ideally inform policy decisions on MSP-setting, CCI procurement and imports, apart from exporters’ decisions, are shrouded in mystery with the informal estimates pegging the number anywhere between 330 lakh bales (170 kgs/bale) and 390 lakh bales.

To unlock the true potential of the cotton economy, the Centre will need to refrain from its ad-hoc interventions in market forces on multiple fronts that ultimately benefit neither the farmer nor the consumer. Given that cotton is a lucrative cash crop with a thriving global trade, it is best that the Centre refrains from announcing ineffectual MSPs that make very little difference to the farmers’ realisations. It must work instead at raising the quality bar on locally grown cotton, improving storage and supply chain infrastructure and widening international market access for Indian cotton exports.

For farmers to make sound sowing decisions and for exporters to capitalise on global opportunities, it is essential that the Centre arms both with believable estimates of output and carry-forward inventories that can help them gauge demand-supply dynamics well ahead of the marketing season. Trade and tariff policies across the value chain also need to be driven by the long-term interests of farmers and exporters, rather than efforts to fire-fight demand-supply mismatches as and when they crop up.

Published on November 18, 2019

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