Allow farmers to make hay while the sun shines

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: International trade gives the producers opportunities to gain when global price is higher than the price under autarky, that is, absence of international trade. This is surely the case of cotton where locally used varieties are priced lower than those internationally traded.

There are other opportunities from export as well—a bumper crop under autarky implies a price fall as supply becomes very large compared to demand. Excessive supply implies that producers have to bid prices down to sell their produce. In the presence of international trading opportunities, producers do not find themselves pushed into such a corner—after all an increase in the supply from just one country does not constitute much of a change in international market conditions, affording producers the opportunity of selling their larger produce at an unaltered price.

Thus, while in autarky we can have the paradox of ‘poverty in plenty’, by contrast abundance leads to prosperity for farmers when the economy is open to international trade. However, during crop failures, the government can always step in to alleviate the adverse effect of a lower produce sold at a steady international price through procurement at a minimum support price that exceeds this international price. Given that opening up the cotton sector to exports can produce higher incomes for farmers in good times and not be the cause of unavoidable harm in bad times, my submission is that we should not ban exports.

This argument can be backed up by statistical facts. There has been a quantum jump in cotton production and productivity in the last 3 or 4 years. As a consequence, India has been able to export increasing amounts of the standard international variety (medium staple) of cotton over time. The production of cotton rose by 23% in 2006-07 over 2005-06 to reach 22.7 million bales, out of which more than half was exported during that year. This has generated valuable foreign exchange for the government and higher incomes for farmers.