By Swati Deb
This is perhaps the ultimate paradox unique to India. Cotton farmers are committing suicide as they are not getting remunerative prices for their crop. On the other hand textile mills have alleged that they are in trouble and will close down because of rising cotton prices and have demanded ban on Futures trading in cotton.

Remember, India is expected to have a bumper cotton crop in 2007-08 at 315 lakh bales. Traders are more interested in exporting at a low price and not interested in selling in India, according to BK Patodia, former chairman, Southern India Mills Association. With cotton exports estimated to be about 85 lakh bales this year (October-September), prices have shot up in the domestic market.

The Cotton Advisory Board estimates the closing stock to be 43 lakh bales. With consumption likely to be 241 lakh bales, the “stock-to-use ratio” thus works out to just 18 per cent. One of the main reasons for cotton prices to soar in the domestic market this year is the low stock-to-use ratio. The closing stock should be at least three months’ cotton consumption, Patodia said.

Hence, cotton exports should not be more than 20 per cent of the cotton crop. Many multinational companies have entered the market unlike previous years and dominated the cotton purchases during the beginning of the season, according to J Thulasidharan, deputy chairman, the Southern India Mills Association. He has appealed to the government to immediately intervene and take necessary steps and make the Indian textile industry to derive benefit out of the home grown cotton.

The MNCs have covered all good quality cotton not only for export purpose but also for selling the cotton in the domestic market. “In today’s scenario, though the spinners are ready to pay the price, the traders are speculating the cotton prices and refusing to sell the cotton to the domestic spinners,” Thulasidharan said. So one could surmise the following scenario: India is having a bumper crop, but the textile mills are not benefiting out of it because traders prefer exports thereby increasing domestic prices. The farmer is not paid a remunerative price either because middlemen pocket it.

THE WAILING FARMER
It’s not without reason that cotton growers have been committing suicide. The rise in cotton prices has not been commensurate with rise in prices of other essential commodities they consume. For example, in 1973 the price of 10 gm gold was Rs 300, the same of as one quintal of cotton. And now, 10 gm of gold cost Rs 12,000 but cotton is priced at Rs 2,700. It may not be typically of cotton.

But nevertheless it’s a fact that farmers don’t get a remunerative price whether it is a bumper crop or not. Farmers dealing with products cutting across all kinds have a common refrain. The government over the years have been adopting ‘inflationary economy’ increasing money supply by various mechanisms and sops like rural employment schemes, pay commissions and allowing foreign investments but the prices of agri-products are not allowed to go up.

The spiraling prices of commodities, including edible oils, have hit the people hard, but agriculturists’ position is worse. After the groundnut oil, other edible oils such as cottonseed have also been impacted. The cost of about 15 kg of cottonseed oil now is Rs 1,030 and it continues to rise. “Price rise of agri-products is very necessary so that producers of essential commodities can survive in the economy,” remarked former director of Maharashtra Cotton Federation Vijay Jawandhia.

He points up that in 2008 too during the start of season soybean was sold at Rs 1,400 per quintal. “Now after everything is sold, the price has gone up to Rs 2000,” he said, adding such has been the case with cotton growers also over the decades. Under BJP-led NDA regime, Jawandhia claimed 110 lakh bales of cotton were imported in seven years. “Because of this import, the desi farmers suffered and the helpless cotton farmers started committing suicide in Andhra Pradesh.” Cotton producing areas in India are spread across Punjab, Haryana, Rajasthan, Maharashtra, Gujarat, Madhya Pradesh, Andra Pradesh, Tamil Nadu and Karnataka.

COTTON & ENVIRONMENT
A study by two UK-based NGOs claimed last year that the cotton production in the country is heavily associated with the intensive use of hazardous pesticides with over 10 million cotton growers and farm labourers are working in a “highly unsafe occupational environment”. The farmers say protective measures and equipment for safe handling are far from being adopted.

The study had listed a number of hazardous pesticides like organophosphorous compound, monocrotophos which account for 22% of the cotton insecticides market in India. Jawandhia and others complain that even on health issues, the government’s role has been far from wanting. “The entire system is working against the producers of essential commodities, especially cotton growers. Instead of increasing the subsidy for food production under the rotation system, the government is transferring their burden to the farmers,” he said.

TEXTILE CRISIS
Since China is facing cotton shortage, the multinationals have even speculated international cotton prices by covering major quantity of Indian cotton. Thulasidharan said the association and also its apex body, Confederation of Indian Textile Industry have made a number of representations right from the beginning of the season to take necessary steps to control cotton prices. He has stated that all the spinning mills would be closed soon if the present trend continues.

But cotton prices are not the only reason why textile industry is in trouble. Factors like sudden appreciation of rupee against US dollar, escalation in bank interest rate, slump in the local and export markets and the abnormal cotton price have also contributed to total paralysis of the textile industry. SIMA has demanded the following measures be taken by the government immediately.

Withdraw 1% incentive (duty drawback) extended for cotton export, reduce cotton import duty from the current 10+4% to 5%, channelise cotton export through Cotton Corporation of India and allow exports only against LCs payable at sight and in foreign currency. Again, it demanded to stipulate to register export and import contracts for cotton with the office of the textile commissioner within a period of 15 days from the finalization of contracts.

Issue necessary notification under the cotton control order and make ginning factories, pressing factories, ginning and pressing factories and cotton traders to declare the stocks of cotton. Ban Futures trading in cotton. To this one may add, the cotton farmer should get a remunerative price.

This article published in COMMODITY MARKET, India’s No 1 news magazine on commodities.

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