Market Reforms and the Market Reforms and the dynamics of cotton trading in dynamics of cotton trading in

India:India: A comparative assessment of smallholder cotton producers in A comparative assessment of smallholder cotton producers in

Gujarat and MaharashtraGujarat and Maharashtra

P.K. Viswanathan P.K. Viswanathan

N. LalithaN. Lalitha

GIDR, AhmedabadGIDR, Ahmedabad

Outline of presentation

BackdropBackdropWhy this study?Why this study?Research concernsResearch concernsObjectivesObjectivesApproachApproach

““It is not a good time to be a farmer in Vidarbha and it is It is not a good time to be a farmer in Vidarbha and it is almost suicidal to be a cotton grower”almost suicidal to be a cotton grower” (A farmer leader)

I. BackdropI. Backdrop

Cotton, an important cash crop, though is grown in Cotton, an important cash crop, though is grown in about 100 countries, six countries, viz., US, China, about 100 countries, six countries, viz., US, China, India, Pakistan, Brazil & Uzbekistan share 73% of India, Pakistan, Brazil & Uzbekistan share 73% of world cotton area (35 million ha) and 80% of global world cotton area (35 million ha) and 80% of global cotton output (43 million MT) during 2005 (FAO)cotton output (43 million MT) during 2005 (FAO)

Notable differences across these countries w.r.t the Notable differences across these countries w.r.t the basic crop/ commodity performance indicators, viz.: basic crop/ commodity performance indicators, viz.: area, production, productivity, trade, etc for reasons area, production, productivity, trade, etc for reasons well documentedwell documented

How the majors perform?How the majors perform?

Cotton: performance of global majors

Country Country Area (% of Area (% of million ha)million ha)

Production (% of Production (% of

million MT)million MT)Productivity (Kg/ha)Productivity (Kg/ha)

19951995 20052005 19951995 20052005 19951995 20052005

IndiaIndia 25.4825.48 25.4425.44 12.3612.36 15.4715.47 486486 749749

ChinaChina 15.2915.29 14.4714.47 26.8326.83 26.4626.46 17591759 22522252

USAUSA 18.2718.27 15.9715.97 17.4817.48 17.9017.90 959959 13801380

PakistanPakistan 8.458.45 8.878.87 10.1410.14 10.2810.28 12021202 14271427

BrazilBrazil 3.363.36 3.613.61 2.572.57 4.144.14 767767 14121412

UzbekistanUzbekistan 4.214.21 4.214.21 6.716.71 5.735.73 15991599 16771677

Sub total Sub total (mha/MT)(mha/MT)

2727 2525 2727 3434

World (Mha/ World (Mha/ MT)MT)

3535 3535 3636 4343 10031003 12311231

% share% share 7575 7373 7676 8080

India, despite having the highest proportion of cotton area (25%), India, despite having the highest proportion of cotton area (25%), occupies only the third position in cotton production (12-15%), occupies only the third position in cotton production (12-15%), and the lowest in terms of productivity and the lowest in terms of productivity

The decade 1995-2005 witnessed tremendous transformation in The decade 1995-2005 witnessed tremendous transformation in the production front as evident from the rise in productivity: 486 the production front as evident from the rise in productivity: 486 kg/ha (1995) to 749 kg/ha (2005)-the impact of technological kg/ha (1995) to 749 kg/ha (2005)-the impact of technological breakthrough brought about by the hybrid cotton cultivars, breakthrough brought about by the hybrid cotton cultivars, followed by Bt technology, especially since 2002followed by Bt technology, especially since 2002

Four major states accounted for 74% of cotton area (of 88.17 lakh Four major states accounted for 74% of cotton area (of 88.17 lakh ha) and 73 % of cotton production (of 41225 lakh MT) during 2005- ha) and 73 % of cotton production (of 41225 lakh MT) during 2005- Gujarat (24,33%), Maharashtra (33, 19%), Andhra (11,12%) & Gujarat (24,33%), Maharashtra (33, 19%), Andhra (11,12%) & Punjab (7, 9%), respectively Punjab (7, 9%), respectively

Area, production, yield of cotton in India-2005Area, production, yield of cotton in India-2005

StateState Area (% of lakh Area (% of lakh ha)ha)

Production (% of Production (% of lakh MT)lakh MT)

Productivity Productivity (kg/ha)(kg/ha)

GujaratGujarat 23.5623.56 32.9932.99 655655

MaharashtraMaharashtra 32.7732.77 18.9718.97 270270

Andhra PradeshAndhra Pradesh 11.0211.02 12.3712.37 525525

PunjabPunjab 6.586.58 8.668.66 615615

OthersOthers 26.0726.07 27.0127.01 484484

All India (ha/MT)All India (ha/MT) 88.1788.17 4122541225 467467

4 states4 states 74%74% 73%73%

Sharp contrasts in performance: Maharashtra, though has the Sharp contrasts in performance: Maharashtra, though has the highest share in area, lags behind Gujarat in terms of highest share in area, lags behind Gujarat in terms of production, productivity being the lowest of all states- much production, productivity being the lowest of all states- much lower than the national averagelower than the national average

Low productivity of cotton has always been a serious concern Low productivity of cotton has always been a serious concern in India in India vis a visvis a vis its counterparts its counterparts

Since the commercial release of Bt varieties in 2002, there has Since the commercial release of Bt varieties in 2002, there has been significant rise in area under Bt cotton, especially in been significant rise in area under Bt cotton, especially in Gujarat, Maharashtra, Andhra and the Punjab, though the Gujarat, Maharashtra, Andhra and the Punjab, though the exact scale and the magnitude of expansion are yet to be exact scale and the magnitude of expansion are yet to be assessed (roughly 4 million ha)assessed (roughly 4 million ha)

Bt ‘cotton faddism’ and the small farmerBt ‘cotton faddism’ and the small farmer However, serious doubts are raised against the Bt technology, as much of However, serious doubts are raised against the Bt technology, as much of

its professed outcomes: higher yield, tolerance to pests/ plant diseases, its professed outcomes: higher yield, tolerance to pests/ plant diseases, etc are proven to be unrealistic and far from reality…etc are proven to be unrealistic and far from reality…

““That the ‘yield dividends’ arising from the Bt technology are realisable That the ‘yield dividends’ arising from the Bt technology are realisable only under an input intensive farm management regime” becomes the only under an input intensive farm management regime” becomes the harsh reality as evident from the emerging trends… harsh reality as evident from the emerging trends…

The reported higher yields do not get translated in terms of higher net The reported higher yields do not get translated in terms of higher net returns at the farm level, due mostly to:returns at the farm level, due mostly to:

a) stagnating prices and the imperfections in the primary market;a) stagnating prices and the imperfections in the primary market;

b) higher dosage of chemical inputs and pesticides that are b) higher dosage of chemical inputs and pesticides that are

required for realising the ‘optimum yield levels’ as claimed by required for realising the ‘optimum yield levels’ as claimed by

the innumerable seed companies (approved/ unapproved/ the innumerable seed companies (approved/ unapproved/

spurious) operating at the farm levelspurious) operating at the farm level

Input costs of Bt technology is Input costs of Bt technology is very highvery high

Bt-cotton seed cost is 2-3 times Bt-cotton seed cost is 2-3 times higherhigher

New insecticides are 5-6 times New insecticides are 5-6 times more costliermore costlier

Spurious seeds & inputsSpurious seeds & inputs

Ploughing/weeding/picking/Ploughing/weeding/picking/labour/spraying/transport costs labour/spraying/transport costs increased 2-3 timesincreased 2-3 times

And…cotton market price was And…cotton market price was stagnant for 10 yearsstagnant for 10 years

Cotton market prices (Rs. Per quintal)

YearYear Support price (Rs.)Support price (Rs.) Market prices (Rs.)Market prices (Rs.)

2001-20022001-2002 18401840 1650-18251650-1825

2002-20032002-2003 18601860 2025-23952025-2395

2003-20042003-2004 19101910 2239-29002239-2900

2004-20052004-2005 19601960 1620-21301620-2130

2005-20062005-2006 19851985 1950-21491950-2149

2006-20072006-2007 20052005 2150-25002150-2500

2007-20082007-2008 20552055 --

Stagnating prices may adversely affect cotton cultivationStagnating prices may adversely affect cotton cultivation Farm level realisation is still lower due to the differential gradingFarm level realisation is still lower due to the differential grading

Trends in cotton prices in India (USD per kg)

0.35 0.360.33 0.33 0.33

0.36 0.370.35 0.36 0.35 0.33 0.33 0.35

0.400.44

0.40

0.000.050.100.150.200.250.300.350.400.450.50

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Despite all, there is a definite trend towards adoption of Bt cotton Despite all, there is a definite trend towards adoption of Bt cotton all over (irrespective of the outcomes: positive/ negative) as all over (irrespective of the outcomes: positive/ negative) as emerge from the growing empirical evidences, particularly in emerge from the growing empirical evidences, particularly in Maharashtra, Gujarat, Andhra and PunjabMaharashtra, Gujarat, Andhra and Punjab

There is a clear vacuum of understanding as regards the emergent There is a clear vacuum of understanding as regards the emergent market dynamics in the wake of the diffusion of Bt technologymarket dynamics in the wake of the diffusion of Bt technology

Whether the dynamism as seen in the input markets has its Whether the dynamism as seen in the input markets has its repercussions on the output market?repercussions on the output market?

Whether the output realised from the Bt varieties have a definite Whether the output realised from the Bt varieties have a definite stake in the market in terms of high quality output and bargaining stake in the market in terms of high quality output and bargaining of better prices? of better prices?

No serious research has gone into understanding this dynamicsNo serious research has gone into understanding this dynamics

II. Why this study?II. Why this study?

Trade reforms has resulted in significant restructuring of the Trade reforms has resulted in significant restructuring of the domestic markets through which the various players try to domestic markets through which the various players try to bargain their stakes and keep it intact, adversely affecting bargain their stakes and keep it intact, adversely affecting the farm level prices the farm level prices

Imperfections in the output market have detrimental impacts Imperfections in the output market have detrimental impacts on the efficient performance of the trading systems on the efficient performance of the trading systems

The existing marketing interventions have become ineffective The existing marketing interventions have become ineffective and less transparent in ensuring higher returns to the and less transparent in ensuring higher returns to the farmers and thereby not compensating for the high risks farmers and thereby not compensating for the high risks involved in the Bt cottoninvolved in the Bt cotton

III. Research concernsIII. Research concerns

India is an exception in the global cotton scenario as cotton production India is an exception in the global cotton scenario as cotton production in rest of the dominant producing countries has been highly supported in rest of the dominant producing countries has been highly supported through direct and indirect subsidies, like income payments, input through direct and indirect subsidies, like income payments, input subsidies and export subsidiessubsidies and export subsidies

This creates distortions in global trade in cotton and countries like India This creates distortions in global trade in cotton and countries like India would be the worst affected in the long term would be the worst affected in the long term

Imports under the OGL scheme has been on the increase in recent timesImports under the OGL scheme has been on the increase in recent times

Input-output markets are interlinked and the farmers are indebted to Input-output markets are interlinked and the farmers are indebted to intermediaries and money lender-cum traders who eats away much of intermediaries and money lender-cum traders who eats away much of the farmer incomesthe farmer incomes

Nexus between the co-operative marketing institutions and the private Nexus between the co-operative marketing institutions and the private traders are strong enough to depress prices augmenting the farm crisistraders are strong enough to depress prices augmenting the farm crisis

IV. ObjectivesIV. Objectives Dynamics of the primary, secondary and the terminal cotton Dynamics of the primary, secondary and the terminal cotton

market and their linkages in the context of trade reformsmarket and their linkages in the context of trade reforms Role of the government support prices, domestic trade prices as Role of the government support prices, domestic trade prices as

well as the influence of the international cotton prices on the well as the influence of the international cotton prices on the domestic market and pricesdomestic market and prices

Trends in the spot and future prices of cotton in the past and Trends in the spot and future prices of cotton in the past and their influence on production and domestic market operationstheir influence on production and domestic market operations

The various reform measures introduced by the government to The various reform measures introduced by the government to organize cotton trading in terms of the institutional mechanisms organize cotton trading in terms of the institutional mechanisms and their performance and their performance

Diffusion of knowledge and training to the farmers to improve the Diffusion of knowledge and training to the farmers to improve the quality of their product to get remunerative prices and the quality of their product to get remunerative prices and the functioning and role of the marketsfunctioning and role of the markets

V. ApproachV. Approach Study will be undertaken in five districts each of Gujarat and Study will be undertaken in five districts each of Gujarat and

Maharashtra covering 200 farmers eachMaharashtra covering 200 farmers each

To reflect upon the marketing decisions of the cotton growers and To reflect upon the marketing decisions of the cotton growers and their perceptions as regards functioning of cotton markets and the their perceptions as regards functioning of cotton markets and the overall impacts of Bt technology on yield, prices, net returns and overall impacts of Bt technology on yield, prices, net returns and socio-economic, environmental and health aspectssocio-economic, environmental and health aspects

Analysis of the trends in spot and futures prices of cotton in Analysis of the trends in spot and futures prices of cotton in historic perspective in India historic perspective in India vsvs its counterparts its counterparts

Driving to policies for efficient and sustainable cotton production Driving to policies for efficient and sustainable cotton production systems in India in the new era systems in India in the new era