The government may have hoped to win over farmers by announcing high minimum support prices (MSPs) for various crops and assuring farmers at least a 50% return over their A2+FL costs, but the strategy is already backfiring with prices ruling below MSPs in many cases. While prices of bajra are Rs 1,250-1,350 per quintal — the MSP is Rs 1,950 — prices of cotton have also fallen 8-13% below the MSP already. While a senior government official told FE that the Cotton Corporation of India (CCI) has set an initial target to purchase a record 10 million bales of cotton — the crop is likely to be around 33 million bales — there is little sign of this so far.
“Arrivals usually pick up from mid-October. So procurement machinery is required to be fully geared up to intervene by then,” he said.
He added, “The CCI can start procurement anytime now in various states, including Punjab. Often, the cotton arrived in mandis before October has high moisture content and the CCI is allowed to buy cotton with a maximum of 12% moisture content.”
On July 4, the government increased the MSP for medium-staple cotton by 28% to Rs 5,150 per quintal and by 26% to Rs 5,450 per quintal, for long staple cotton to ensure the benchmark prices were at 150% of the cost (A2+FL) for 2018-19 crop year (July-June).
On Wednesday, prices of long-staple cotton in Padampur mandi in Ganganagar district of Rajasthan were in the range of Rs 5,000-5,050 a quintal (8% below MSP) while the daily arrival was about 200 tonnes, traders said. Ganganagar district, a major production centre in Rajasthan, has received arrival of about 8,000 tonne of cotton in different mandis last month. “Prices were about Rs 5,500 a quintal during the week-ended September 27,” said a commission agent of Padampur mandi.
In Madhya Pradesh, which has seen maximum arrival of cotton in the country so far, the quantity was less than 10,000 tonne until September 27, but this rose to over 28,000 tonne by September 30. Khargone mandi in Madhya Pradesh received about 20,000 tonne of cotton in 10 days starting from September 21 and mandi prices of medioum staple fell from a high of Rs 4,800/quintal to Rs 4,480 on October 1. This means the current price is already nearly 13% lower than MSP.
In Punjab, prices dropped from a peak of Rs 5,900 to about Rs 5,100 per quintal, pointing a downward trend as more and more cotton is coming to the mandis. “It seems the Cotton Corporation has not signed any agreement with the ginning mills,” said Punjab Farmers’ Commission chairman Ajay Vir Jakhar. He said prices have started falling and, as arrivals go up, there could be further decline. Cotton Corporation of India, which is the nodal agency to MSP operation of the fibre crop, is yet to open its purchase centres at mandis, officials said.
FE had estimated that, if market prices of crops (except sugarcane) are lower than the MSP by 20%, this could cost the exchequer as much as Rs 1,75,000 crore in a full year. The calculation was based on assuming that all the crops will be brought to the market since farmers will find it more profitable to sell the crop to the government and then buy back what they need for consumption when the prices fall.
The government had raised cotton MSP (medium staple) by a record 39% in 2008-09, driving up the CCI’s cotton procurement to an all-time-high level of 8.9 million bales, as elevated raw material prices kept textile mills away. Wide-scale protests by the textile industry and losses on procurement operations forced the government to keep the MSP unchanged for the next two years—up to 2010-11.
However, in 2012-13, when it raised the MSP again substantially by 28.6%, the CCI had to intervene by buying 2.3 million bales, the third-highest procurement year so far. This was despite the fact that cotton export volume touched a record 12.9 million bales that year and domestic production had fallen 5.4% from a year before.
Source: financialexpress.com