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Opinion - Editorial


The cotton calamity

PREDICTABLY, AT THE 63rd plenary of the International Cotton Advisory Committee (ICAC) in Mumbai, the common refrain among many Asian and African producing countries was the adverse fallout of acute market volatility on growers and, in the immediate context, precipitously declining global cotton prices. At the inaugural session, the Union Minister for Textiles, the Chief Minister of Maharashtra and the Deputy Chairman of the Planning Commission all lashed out at farm subsidies doled out by the rich nations. But it did not seem to cut any ice.

A significant increase in the global cotton output in 2004-05, including in India, has pushed the market down to unremunerative levels. Small and marginal farmers in Asia and Africa are badly affected. Funds also appear to be playing a major role in impacting futures prices. Speculators, with their superior knowledge of the market dynamics, are having a field day. With limited access to markets and price information, farmers in developing economies are bearing the brunt of the price collapse. India allots the world's largest area (close to 90 lakh hectares) to cotton, but its output level is ranked third (after China and the US) because of low yields — less than 400 kg per hectare against the global average of over 550 kg/ha. Inconsistent quality is another issue. Cotton growers have to tackle the vagaries not only of the weather but also of the marketplace and international trends. It is time policymakers cottoned on to the realities.

Technology and subsidy are the two drivers of cotton production and market prices. Infusion of technology, including genetic modification (GM), has surely benefited growers in developed countries such as the US. Whether GM technology is appropriate for an agrarian economy such as India given its farming conditions is a matter of debate; but there can be no argument against application of science in agriculture. What, however, deserves an international debate, especially at such forums as the ICAC plenary, is the issue of farm subsidies that distort the market and the playing field. The international cotton body has to take a clear stand on subsidies. The World Trade Organisation has ruled against cotton subsidies extended by the US. The ICAC can step up the pressure on developed countries to pare subsidies.

It may be politically correct to attack farm support by developed countries, but it would be futile to expect major changes in the subsidy regime any time soon. So, it is necessary that we put our house in order. Pubic investment in agriculture needs to be stepped up. Processors and users of cotton such as textile mills have to be attracted to establish backward linkages. Market reforms are necessary. The minimum support price regime should be largely linked to market conditions as a high and constantly rising MSP, though socially desirable and politically expedient, is not sustainable and has the effect of lulling farmers into complacency and insulating them from market realities. Capacity-building among farmers is the key. For now, to tide over the glut situation, the Government must encourage cotton exports, if need be by granting WTO-compatible cost reimbursements.

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