Cabinet may increase cotton MSP by 43%

Written by Banikinkar Pattanayak | New Delhi | Updated: May 25 2012, 20:54pm hrs
The government may hike the benchmark prices of cotton by up to 43% for the next marketing year starting October much higher than the levels recommended by the Commission For Agricultural Costs and Prices (CACP) to boost farmers earnings and also sustain the surge in production in recent years.

The Cabinet will consider raising the minimum support price (MSP) of long-staple varieties to R4,300 per quintal in 2012-13 from R3,300 a year before. Similarly, the price of medium-staple varieties is proposed to be hiked to R4,000 from R2,800, official sources told FE. The Cabinet is expected to discuss MSPs for various summer crops soon.

The CACP had suggested that cotton prices be raised to R3,600 a quintal for medium-staple and R3,900 for long-staple varieties for 2012-13. If approved by the Cabinet, the move will raise the purchase price of the key raw material for the textile industry. The exact effect of the hike will depend on the price trends globally. There are apprehensions by some that global output may fall, exerting some pressure on prices. But then, purchases by the Chinese hold the key to any rise or fall in cotton prices in 2012-13. However, the proposed MSP of R4,300 per quintal for long-staple varieties is higher than the current market price, said DK Nair, the secretary-general of the Confederation Of the Indian Textile Industry.

The proposed increase is also aimed at preventing any slump in cotton production, as domestic prices in 2011-12 crashed after surging to record levels a year before while input costs for farmers leaped. Trade executives apprehend that cotton output will likely fall in 2012-13 as farmers may plant less of the crop after their earning have been hurt by poor demand from textile mills and periodic curbs on exports this year.

India, the world's second-largest cotton producer and supplier, is expecting an all-time-high harvest of 34.7 million bales of cotton in 2011-12, up from 33.9 million bales last year, thanks to a record surge in areas under the crop to more than 12 million hectares.

Pitching for the removal of export curbs to boost returns for farmers, agriculture minister Sharad Pawar wrote to prime minister Manmohan Singh in April: You are aware that pesticide costs have escalated by nearly 150%, seed costs by 75%, fertiliser costs especially urea by 60% and diesel costs by nearly 75% over the last couple of years. Added to this is the extremely high cost of labour on account of MNREGA. Pawar also added that the farmer must not be asked to subsidise the consumer.

According to Agriculture secretary PK Basu, the recent flare-up in inflation has not been stoked by a hike in MSPs, as the consumer has witnessed price rise more in items for which the government doesn't set any price, such as vegetables and milk.

After freeing the cotton trade for more than six months in 2011-12, the commerce ministry banned exports on March 5 to keep domestic supplies steady after harvesting is over. But the restriction was lifted within a week following strong protests by Pawar who argued that farmers earning will dwindle further. Prices of the popular Shanker-6 variety has crashed by more than 50% to R34,000 per candy of 356 kg in the past one year.

However, commerce and textile minister Anand Sharma had defended the ban, saying it was better to restrict exports on time than having to import the fibre at higher prices later. Textile mills are facing an acute liquidity crisis and are unable to stock up significantly in the absence of adequate and affordable credit. Several textile firms have walked into a dent trap owing to a sudden fall in product prices after two successive years of relentless rise in raw material costs.