Gujarat, one of the major cotton-producing states, is facing a shortfall in the crop’s supply due to the Centre’s sudden decision to scrap R500 and R1,000 notes in a crackdown on black money in the country. From arrivals of 35,000 bales of cotton in Gujarat since Diwali, arrivals of the cash crop dropped to 15,000 bales on Thursday.
Talking to FE, Indore-based cotton trader Girish Kabra said, “There are some transaction issues occurring in cotton trading since yesterday (Wednesday). Ginners can only pay in cheques, but farmers are not interested in payment through cheques. Even yesterday, 30,000 bales of cotton arrived in Gujarat, but there was no auction. Most of the farmers returned home carrying the cotton they had brought. About 20% of farmers alone are open to payment through cheques. The only arrivals today in Gujarat are those where traders are directly supplying the cotton to the ginners’ factories.”
Agriculture produce market committees (APMCs) in several states have pulled down their shutters in the initial panic resulting because of the lack of notes. Dilip Patel, president, All Gujarat Ginners’ Association, said, “Markets are shut today (Thursday) and will remain so until people have cash to buy produce. At the APMCs, farmers will accept only cash and even otherwise, the cotton trade is mainly carried out through cash. Once the currency gets in, everything will be okay.”
For ginners, procurement of cotton can cost up to at least R3 crore in a day alone. Patel added, “It is essential to get the new notes soon. Banks have opened up today, and people are beginning to get money again. The government must have made preparations before taking this step, but it is necessary for the money to be disbursed soon. Otherwise, there will be panic and prices may rise also if the markets remain shut due to a lack of funds.”
Cotton traders fear that farmers may hike prices of the crop if the situation does not improve soon. All the APMCs in Saurashtra, one of the major markets for cotton in Gujarat, are all shut on Thursday after a drop in sales on Wednesday.
Cotton trader Deepak Doshi said, “Till a day before yesterday (Tuesday), when the reforms were announced, markets were successfully operating as it’s the peak season now. Arrivals of all crops were recorded in normal quantities. From Wednesday, market activity has been dropping.”
In Mahuva, which houses one of the major market yards in the Saurashtra region, arrivals of cotton dropped from the usual 100 bales to an absolute stop on Thursday.
“Sometimes, we purchase the crop directly from the farmers’ houses; that has also stopped now. Farmers are refusing to sell unless people can pay in cash. While the market rate for cotton on Wednesday was R38,000 per candy, on Thursday it rose to R38,500 per candy”, Doshi added.
Kabra added a cautionary note, saying prices will continue to remain positive due to the short supply of cotton, but business transactions will be lesser until the situation normalises. “This is the peak arrival season for the cotton crop, and right now the market arrival pressure has dropped due to the shortfall causing positive movement in the prices. As a result, cotton seed and cotton oil prices have also risen, where usually there is movement of two or three per 20 kg in their prices each day, they have risen by nearly R10 per 20 kg from yesterday till today,” he added.
The situation is expected to normalise as soon as banks resume functioning and cash flow is restored. Kabra said, “The trade is expected to pick up in the next two days, as soon as the banks begin transactions. By Monday, trading will definitely be operational again.”