Financial Daily from THE HINDU group of publications
Tuesday, Nov 01, 2005
Agri-Biz & Commodities - Agricultural Policy
Cotton/sugarcane: The pricing conundrum in Maharashtra
Apropos the report by G. Chandrashekhar, "No case for cotton and sugarcane price hike" (Business Line, October 25), I wish to make the following comments:
Cotton: I agree with the author that the growers should not be made to live in a world of artificial security. In fact, the farmers growing cotton and sugarcane in Maharashtra are agitating precisely because they are opposed to governmental intervention under the garb of offering security to institutions controlled by politicians that were ostensibly created for offering security to farmers the Maharashtra State Cotton Monopoly Procurement Scheme and the Cooperative Sugar Factories.
Mr Chandrasekhar quotes Maharashtra's Minister of State for Agriculture to bring out the point that the State's farmer is heavily indebted and on the verge of collapse. In fact, Dr M. S. Swaminathan, Chairman of the National Commission, brought this out during his visit to Maharashtra recently. The reasons for the farmer in Maharashtra getting deeper into debt are to be found in the monopolistic structures built by successive Congress governments since Independence. Contrary to the contention in the news report, the State minister concerned is not expected to make a case for an upward revision in cotton support prices. The Government of Maharashtra has decided that the farmers would be paid a Guarantee Price at the time of delivery of cotton that will be 20 per cent lower than the Minimum Support Price announced by the Central government.
The author appears to be under an impression that the loss of some Rs 1,000 crore caused to the exchequer represents munificent prices paid to the cotton growers. Nothing could be more misleading. Since 1971, the cotton monopoly procurement scheme price of Maharashtra has consistently been lower than that prevailing in the open market in Andhra Pradesh and Madhya Pradesh and as also that paid by the cooperative societies in Gujarat except in three years. The loss caused to the cotton growers of the Vidarbha region alone, at the rate of difference between the domestic and foreign market prices, is estimated at Rs 33,000crore. The loss to the exchequer is attributable to the inefficiency and corruption in procurement, ginning and sales.
Last year, the Government of Maharashtra announced a price of Rs 2,300 per quintal as an act of acknowledged profligacy to woo the farmer constituency. It must be remembered that paying a price lower than the Minimum Support Price (MSP) is a criminal offence. One wonders what the remedial action would be if the government itself is the offender! This year, the Government of Maharashtra has announced that it will not pay more than the MSP and that it would pay on delivery only 80 per cent of that amount. The MSP is the price that can be compared only with that paid at the time of delivery. If a purchaser has paid the farmer some money ahead of the delivery or offers to pay at a date after the delivery, that fact cannot be recognised for determining whether the MSP has, in fact, been paid. The decision of the government of Maharashtra to pay only 80 per cent of the MSP at the time of taking delivery of the cotton constitutes an infarction of the legal provisions regarding the payment of the MSP.
The contention of the agitating farmers is that the Government of Maharashtra should wind up the Monopoly Procurement Scheme and allow private traders to get into the market alongside the governmental agency. If the monopoly scheme is wound up then the cotton growers of Maharashtra will be satisfied with the MSP or the market price, whichever is higher. If the Government insists on retaining the privileges of a monopoly, it must be prepared to bear a charge for that. Farmer organisations have, since 1986, claimed that the Guarantee Price under the Cotton Monopoly Scheme paid at the time of taking delivery should be 20 per cent higher than the MSP. What additional price would become due to be paid to the farmers will depend upon the profit actually made by the scheme during the year. Thus, the cotton growers of Maharashtra are not asking for a higher price. They are only insisting that if the monopoly scheme is to continue in this era of liberalisation, they must be assured of a premium built into the Guarantee Price.
Sugarcane: The growers of Maharashtra deliver almost all their cane to cooperative sugar factories. In principle, these factories pay the cane-grower members a certain sum, generally equal to the Statutory Minimum Price (SMP) as an advance. Later during the year, the growers are paid supplementary amounts depending upon the profits made by the cooperative sugar factories. For years together, the Government of Maharashtra has intervened and announced the maximum price that can be paid by the factories to the growers. Year after year, the price paid at the time of delivery has been lower than the SMP fixed by the Central government.
This is in stark contrast to the fact that the governments of most northern States pay farmers the State Administered Price (SAP), which is invariably higher than the SMP. For the season 2005-06, for example, the cane prices in Uttar Pradesh are around Rs 1,200 a tonne. The cooperative sugar factories in Gujarat have paid the cane growers around Rs 1,300 a tonne. The Government of Maharashtra has, on the other hand, issued a notification that no cooperative sugar factory will pay the farmers more than Rs 897 a tonne at the time of delivery. It must be remembered that the cane in most of the northern States has a relatively low sugar recovery percentage compared with Maharashtra's high 12-13 per cent.
The sugar-barons of Maharashtra have been protesting, for some years, their inability to pay even the SMP on the grounds of adverse conditions in the sugar market. This year, the market situation is quite different. Sugar prices are expected to rule at Rs 1,800-2,000 a quintal. Taking into account the high prevailing prices for molasses and bagasse, the cooperative sugar factories should earn around Rs 2,500 on processing one tonne of sugarcane. Deducting the average cost of extraction of Rs 311, the factory should make a net profit of Rs 2000-2200 this year. Unlike in some of the previous years, the market conditions should allow the factories to pay an advance price of Rs 1500 per tonne, which is what the farmers are demanding.
The Government of Maharashtra obviously to force the farmers to deliver their cane to the cooperative sugar factories is deploying an armoury of instruments:
NABARD has told the sugar factories that they would lose the advantage of the special package prepared by the Central government for them, in case they pay a price higher than the SMP.
2) The Government of Maharashtra has banned the transport of sugarcane to the neighbouring Karnataka where the factories are willing to offer Rs 1100 per tonne.
The State government has issued a notification banning confection of gur by farmers.
It will thus be seen that the farmers in Maharashtra are not asking for a higher price for the cotton/sugarcane but are opposing the government attempts to treat the SMP as the maximum price payable to the farmers. Further, the cane growers are claiming only a part of the amount that would become payable to them by the cooperative sugar factories if they were working honestly.
Sharad Joshi, Founder, Shetkari Sanghatana and Rajya Sabha MP.
G. Chandrashekhar responds
I must thank Mr Sharad Joshi for supporting the view that growers should not be allowed to live in a world of artificial security.
Over the years, the cotton monopoly procurement scheme of the Maharashtra Government has resulted in huge losses to the State exchequer. Whether higher procurement prices or inefficiencies of the marketing federation or both resulted in the losses can be a point of endless debate. Possibly, the losses have been a combination of both. The article highlighted the need for making the State marketing federation more efficient as also raising cotton productivity, among other things. In the ultimate analysis, losses are a matter of fact and record.
The issue is how to minimise, and possibly eliminate, losses without compromising the growers' right to obtain `reasonable or remunerative price'. Without any doubt, farmers need price support. The rapid growth of the Indian economy depends on the rapid increase in farm incomes. However, a look at the internal and external challenges faced by an average Indian farmer is enough to convince one that his ability to respond to higher prices with higher output is extremely limited.
We need to take non-price and non-trade initiatives to strengthen agriculture including cotton cultivation. We need investments to build rural infrastructure, strengthen input delivery systems, expand irrigation facilities, improve agronomic practices, deliver price and market information to farmers, and remove impediments to free marketing.
Leaders must fight for stepping up these investments because these alone will truly empower growers. There is little Maharashtra has done in terms of investment. Mr Joshi has asserted that so long as monopoly procurement continues, the government must pay a 20 per cent premium. The State government will have to take a call on that; but given the State's finances how long these profligate practices will continue is anybody's guess. Sugarcane too is a vexatious issue. Maharashtra is rapidly losing its dominant status. Given the forecast of a serious water shortage by 2010, cane cultivation could be the first to face a threat.
Whether cotton or sugarcane, price is but one aspect, an important one, no doubt. It is essential to find holistic solutions to farm related issues, instead of harping on price alone. In fact, everyone looks to leaders like Mr Sharad Joshi to save Indian agriculture from the crushing challenges; but we need to divorce politics from agriculture.
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