Long yarn

The cotton story is a tangled tale. In many parts of India, farmers are committing suicide. It's been a while Andhra Pradesh, Punjab and now Vidarbha in Maharashtra. What goes into the vicious cycle is indebtedness, brought on by a combination of international trade cycles, state policies on subsidies and tariffs and the trade-off between the interest of cultivators and manufacturers of the products that make cotton a commercial crop.

Caught in the spinning wheel, principally, are three of the usual suspects: the us, India and China. The biggest problem is that Uncle Sam gives big subsidies to its cotton farmers, a problem that has been haunting the World Trade Organization (wto) for a while. So India is importing cheap raw cotton, especially the extra-long staple (els) needed for the high-end textile trade. With the death of anti-dumping regulations, India expects a substantial increase in its textile trade and the textile lobby is powerful -- witness the recent proposal, approved by cabinet, to amend labour laws to help the industry deal with industrial ups and downs.

Indian subsidies are low restricted to the southward-bound minimum support price (msp) for a small amount of total output, based on quality. Privatisation in procurement has made cotton farmers more vulnerable. But for textile magnates, importing cheap us cotton still remains a more worthwhile option. So, who cashes in? Private traders. And how? The strange thing is that while India is now importing raw cotton, it's also exporting -- through a private procurement and export regime -- mainly to Bangladesh and China. The profits are going to big trading houses, which is why farmers are committing suicide and not traders.

Stranger still is the fact that India is exporting cotton to its main rival in the global retail textile market. China imposes huge duties on Indian, and other, raw cotton to protect its farmers, which India does not. But it has overcome that extra cost to become the most competitive player in the global market because it has better technology.

sourav mishra unravels the enigma of the cotton story.

By Nitin Sethi
Published: Friday 31 March 2006

Long yarn

-- (Credit: Debojyoti kundu / CSE) Unlike the affluent western Maharashtra, represented by successful farmer-politicians like Union agriculture minister Sharad Pawar, which gets plenty of facilities by way of irrigation and credit, Vidarbha gets practically nothing (see graph: Tale of two regions), despite the fact that Vidarbha has harsher conditions mainly low soil fertility and less rain.

The figures are telling. Input costs for cotton have risen from Rs 5,000 per hectare (ha) in 1995 to Rs 10,000-12,000 now. Moreover, only 11 per cent of the cotton crop has assured irrigation in Maharashtra. Water charges are also the highest in the country. They vary from Rs 180 to Rs 1,080 per ha, depending on several variable factors. In most other cotton states, water is either free or charged nominal rates in the range of Rs 50 to Rs 200. Productivity is also a problem. Maharashtra has the highest area under cotton -- around 3 million ha on average, each year. This is more than Punjab, Haryana, Rajasthan, Madhya Pradesh and Andhra Pradesh put together. But its productivity is the lowest in the country -- it produces less than Gujarat, where the acreage is half.

Cotton farmers survived because of the higher msp paid by the state government and procurement and marketing systems that assured farmers their produce would be bought and sold by the government. Private sector participation in procurement and marketing hit the state schemes in 2002; and higher msps went this year. And suicides started going up.

Marketing mayhem
Till 2003-2004 Maharashtra used to be the only state in the country where a monopoly scheme for procuring cotton was in operation. The state used to offer a 20 per cent premium on the central government's declared msp, under the Maharashtra Raw Cotton Monopoly Procurement Act, 1972, to counter low production and prices. The act gave the Maharashtra Cotton Producers' Marketing Federation (mcpmf) monopoly status as the sole procurement agency. Under the scheme, 75 per cent of mcpmf's profit was to be distributed as bonus to farmers while the rest was to be kept as a price-fluctuation buffer. Critics say the scheme was started to help the Mumbai-based textile industries rather than farmers. Visesh Joshi, an activist based in Mumbai, says the scheme was started in 1972 because the international prices were too high and there was a production crisis in India. But, clearly, farmers benefited.

This procurement scheme was better than the central procurement scheme by the Cotton Corporation of India (cci). cci procures only 10 per cent of the farmers' produce across the country, based on quality parameters, while mcpmf procured the entire harvest.

Tale of two regions
Disparity in bank credit and irrigation infrastructure

Region in Maharastra Loans disbursed (in percentage) Irrigation facilities (in percentage)
Western Maharashtra 80 82
Konkan 24 28
Marathwada 18 21
Vidarbha 8 11

But over the years, the scheme was destroyed by widespread corruption, which created huge losses. Till 1994, the loss was only Rs 172 crore. The figure rose to over Rs 5,000 crore in 2004-2005, when mcpmf incurred an incremental loss of Rs 1,600 crore. As a result, financial institutions refused to refinance the company, which the Maharashtra government cited as the reason for doing away with bonus and premium schemes.

No mercy
The Maharashtra government breached its promise to farmers twice this cotton season. The initial blow came in the beginning of the 2005-2006 cotton season when the bonus was abolished after 33 years. This prompted farmers to flock to sahukars, who charged them much higher interest.

A study by the Tata Institute of Social Sciences on Vidarbha farmers' suicides reveals that about 75 per cent of farmers in the region obtained loans from moneylenders. It also found that most of them had defaulted on bank loans over the last four years, which is why they had to turn to moneylenders. Even moneylenders have become cagier. With rising costs and the advent of Bt seeds increasing credit requirements, the situation has turned desperate .

The second blow came mid-way through the season. The government lowered msp from Rs 2,500 per 100 kg to Rs 1,750. This translated into huge debt traps even before the season ended, triggering suicides before procurement started. "The government reduced procurement price to the all-India level to reduce the Rs 5,000-crore loss of the procurement agency, mcpmf," claims N P Hirani, the chief of the agency.

"This year's payment crisis has its roots in electoral promises made before past elections. The Democratic Front government (Maharashtra's ruling coalition) promised a rate of Rs 2,700 per 100 kg to cotton growers before elections. But it reneged. It reduced payment liabilities by asking mcpmf to declare a support price of Rs 2,500. Even that went down the tube, ruining most farmers," says Jaideep Hardikar, a journalist and researcher in Vidarbha. "The promise of Rs 2,700 per 100 kg and past years' boom in international markets saw the acreage under cotton rise by 20 per cent. Now with a price crash, the textile mills will have a field day," says Vijay Jawandhia, a farmer leader.

The cotton failure in Vidarbha is a lesson in policy failure -- a fact underlined by Gujarat's spectacular success.

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