Why once fast growing cottonseed industry is suffering

Falling crop prices isn’t good news for seed firms, given implications on demand for their product.

Labour, fertiliser and pesticide costs have all gone up, whereas the seed price has remained the same. If our margins are going to shrink, making it difficult to pay our seed growers and invest in R&D. (Reuters)

Falling crop prices isn’t good news for seed firms, given implications on demand for their product.

This is being seen in cotton, where average kapas realisations of Rs 3,900-4,000 per quintal in 2014-15, against Rs 5,000-plus for the previous year’s crop, has dampened farmers’ enthusiasm to plant. Ground-level reports suggest significant acreage diversion this time, especially to pulses, groundnut and maize whose price prospects appear more promising.

But companies selling cotton seeds are facing a double whammy, not just from lower demand, but also inability to raise prices due to controls imposed by state governments in Maharashtra, Gujarat, Andhra Pradesh and Telangana. These four states account for over 70 per cent of the estimated domestic market of 50-51 million packets, each containing 450 grams of Bt and 120 grams non-Bt cotton seeds.

(Bt refers to Bacillus thuringiensis, a bacterium that produces proteins toxic to bollworm insect pests and whose genes are inserted into crops using recombinant DNA/genetic engineering tools).

When Bt cotton was introduced in India in 2002, the seeds were sold at Rs 1,600 per packet. But in 2006, the AP government fixed the maximum retail price (MRP) for Bt cotton seeds, incorporating the US life sciences major Monsanto’s Bollgard single-gene (BG-I) technology, at Rs 750 per packet.

Other states soon followed suit, even enacting their own price control legislations. In 2008, they extended the Rs 750 rate to even seeds based on Monsanto’s more advanced Bollgard double-gene (BG-II) construct, while further slashing the MRP for BG-I packets to Rs 650.

These prices remained unchanged until 2013, when they were increased to Rs 830 for BG-I and Rs 930 for BG-II packets. The rates haven’t been revised upwards since then; Maharashtra’s BJP-led government under Devendra Fadnavis, on June 8, actually reduced the MRPs of BG-I and BG-II cotton seeds to Rs 730 and Rs 830 per packet respectively for the current year.

The above price reductions were largely enabled by a lowering of the ‘trait fee’ being paid by seed companies to Mahyco-Monsanto Biotech — a joint venture between the St Louis-headquartered firm and its Indian partner, Maharashtra Hybrid Seeds Company — for introducing the Bollgard gene construct into their own cotton hybrids. The trait fee, originally Rs 900 per packet, was brought down to Rs 122.96 for BG-I and Rs 183.46 for BG-II technologies.

The reduction in MRPs helped in the widespread diffusion of Bt cotton technology, similar to what low call charges did for mobile telephony though the latter was more a result of market competition than state fiat. Annual sales of Bt seed packets soared from 1.05 lakh in 2002 to 500 lakh-plus last year.

But state-directed MRP reductions are proving increasingly counter-productive, with seed companies struggling to get farmers to produce for them. “India has some 70 lakh farmers who produce kapas (raw un-ginned cotton) for commercial sale. But there are also 2 lakh-odd growers who produce the hybrid cotton seeds that the former plant. We cannot ignore them,” observed Raju Barwale, managing director, Mahyco.

Hybrid seeds production is a highly labour-intensive affair, where the male part of a flower is removed one day and the resultant female parent manually pollinated with the pollen from another flower the next day. It takes 7-8 labourers working over two months to produce cottonseeds from one acre.

“A normal cotton grower would harvest 10 quintals of kapas and incur expenses of Rs 20,000-22,000 per acre. The corresponding kapas yield for the hybrid seed farmer will be 4.65 quintals, taking an average seed recovery of 300 kg (kapas contains 65 per cent seed and 35 per cent lint). Also, his expenses would work out to Rs 55,000-65,000 per acre, of which Rs 45,000-50,000 is labour costs alone,” noted Sameer Mulay, managing director of the Aurangabad-based Ajeet Seeds.

The high labour requirement also means that hybrid cottonseed cultivation is concentrated in select pockets: Gadwal (Telangana), Madanapalle (AP), Attur (Tamil Nadu), Gajendragarh (Karnataka), Idar, Khedbrahma and Sabarkantha (Gujarat), and Jalna, Buldhana and Nanded (Maharashtra).

“In the last five years, we have had to increase our procurement price from Rs 275-300 to Rs 480 per kg of first-stage ginned seeds,” added Mulay, whose company sources cottonseeds from over 50,000 growers. According to the industry, the cost of 450 grams of fully-processed clean Bt cottonseeds is anywhere between Rs 275 to 300. To these, if expenses towards trait fees (Rs 183), 120 grams of non-Bt seeds (Rs 45) and administrative/factory overheads (Rs 100) are added, the total per-packet cost comes to around Rs 620.

“An MRP of Rs 830 hardly leaves much for distribution, marketing and branding, leave alone undertaking R&D and extension work,” an industry representative claimed, while pointing out that seeds (assuming 1.6 packets per acre) makes up just 6-7 per cent of cultivation costs for the farmer.

“Labour, fertiliser and pesticide costs have all gone up, whereas the seed price has remained the same. If our margins are going to shrink, making it difficult to pay our seed growers and invest in R&D, the ultimate sufferer will be the regular kapas farmer,” he said.

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First published on: 04-07-2015 at 12:43 IST
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