NEW DELHI — Cotton farmers, worried about the continued decline in cotton prices and a surplus in production, are seeking protectionist measures from the Indian government.
“The cotton production this season is expected to scale new heights, with significant increase in the acreage under cotton,” thanks to widespread rains across the cotton belt, said Dhiren N. Sheth, president of the Cotton Association of India.
Sheth said cotton production during the 2011-12 cotton season is expected to be 12.71 billion pounds, while cotton consumption is likely to be below 49.35 billion pounds, leaving a huge carryover of stock.
Exports are also expected to be up, projected to be 299.2 million pounds by September by the Cotton Advisory Board, 37.4 million pounds more than the previous season.
India is the second-largest producer, consumer and exporter of cotton. The country harvested a record cotton production of 12.14 billion pounds in 2010-11.
Yet with surplus production and falling prices, the question of how much aid cotton farmers need for their efforts, and the level of protectionism that the government should apply, has been part of an increasing debate looming over the textile industry.
Industry analysts feel that fixing cotton prices will adversely affect the yarn, fabric and apparel sectors. Cotton prices have dropped by more than 45 percent in India in the last six months. Shankar 6, which is one of the major exports from India and some of the highest-quality cotton produced in the Saurashtra region, was selling in April at $1,164 for 783 pounds, which equals one candy, the measurement of choice in India. The price is now $658 for one candy.
In Maharashtra, the second-largest cotton-producing state in India, farmers have been vociferous in their demand for the government to step in and fix a minimum support price for cotton farmers. The Indian government has set a minimum support price of $62 per 220 pounds for long staple cotton, which means that if the price of cotton falls below this amount, the government will buy the produce from the farmers at the agreed price.
However, farmers have been agitating in recent weeks and demanding a fixed purchase price of $103 per 220 pounds. This has set off a debate among government officials and analysts, many of whom believe that supporting farmers is essential but also that it is best for cotton prices to be set by market rates.
“Productivity per hectare is much lower in Maharashtra, and this needs to be raised,” said Ajay Kumar, an economist at the Confederation of Indian Textile Industry. “Fixing prices will affect the yarn and apparel industries adversely when they are already reeling from the high cotton prices from last year. It will affect exports and badly affect the textile industry, which is also suffering.”
Analysts are predicting a further fall in cotton prices in India, despite the high domestic demand.
With the textile industry already in a state of deterioration with the fluctuating cotton prices over the last six months, as well as many mills shutting down rather than suffering losses, the issue of protectionism for farmers may come at a high cost.
“Farmers must get a fair remuneration, but the best solution is to improve productivity, which is very low in certain areas,” said Kumar. “There is already a struggle on with the infrastructure problems, and this kind of price-setting will cause the entire economy to be distorted.”
Sheth of the Cotton Association of India observed that this would be a solution that would benefit everyone.
“Since 33 percent of the global cotton area is in India and the current yields are significantly lower compared to the four major cotton-growing countries — China, U.S., Pakistan and Brazil — there is immense scope for yield enhancement in India, and this increase will have the greatest impact on global supply.”
The government has stepped in over the last year with various stipulations, such as a ceiling of 2.05 billion pounds for cotton exports on Dec. 1, 2010.
“I strongly believe that free and consistent trade policy on the cotton-export front is essential for the overall growth of the entire cotton and textile sector, and I sincerely hope that the lessons have been learned from the consequences of the knee-jerk measures taken last year, which would not get repeated,” said D.K. Nair, secretary general of the Confederation of Indian Textile Industry.
However, A. Shaktivel, president of the Tirupur Exporters’ Association, feels that cotton surplus is not a cause of concern. He said, “The decline in the spinning sector led to a decreased demand for cotton, but over the next two months the mills will start running much more fully. That will change the situation.”
The focus now seems to be on the need for a consolidated and predictable policy framework from the government that does not interfere with the market economy.
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