Maharashtra's cotton farmers in trouble over erratic rains and surplus cotton in international market

YarnsandFibers News Bureau 2014-08-13 15:30:00 – Maharashtra, India

Farmers in Maharashtra’s cotton belt forced to sow their fields a number of times due to erratic rains which has increased individual debts, as farmers who exhausted their institutional credit have borrowed money from informal moneylenders to finance the replanting of fields, raising the spectre of further deaths around harvest time.

Recent reports suggest the rainfall deficit in Maharashtra's cotton belts of Vidarbha and Marathwada has widened; Marathwada is now facing a 60 percent deficit, while the shortfall in Vidarbha is 23 per cent.

Statistics from the Ministry of Agriculture indicate farmers across the country have planted more cotton this year compared to the last, as the crop is considered drought-resistant compared to other options such as soybean.

Farmers hope a revitalized monsoon could yet result in good yields and good profits, but a perfect storm of local, national and international factors could mean low cotton prices, lower profits and persistent indebtedness.

According to Faiyaz Hudani, associate vice-president (research) at Kotak Commodities, international cotton prices have fallen this year. October futures for cotton on the ICE benchmark index have dropped by 26 percent in the past month, while October futures on Indian exchanges have seen a decline of 15 percent.

Globally, cotton prices have been depressed by a very good harvest in the US, which has brought additional supply to the market, while global demand for cotton has slowed, as China, the world's largest cotton producer and importer, has imported 42 percent less in the first six months of this year.

However, this year, the Chinese government is replacing a 2011 cotton stockpiling policy with a crop-subsidy programme, details not revealed.

Hudani said that it was difficult to predict spot prices in October but expects prices to be slightly below last year's levels. Price movement will be sideways to negative.

As per D K Nair, secretary-general of the Confederation of Indian Textile Industry, international prices are the main drivers of domestic cotton prices in India. Cotton futures trading in India was negligible as traders took price cues from domestic and international exchanges. The price will also be affected by the exchange rate and the market's anticipation of the price in the following year.

Nair cautioned cotton procurement by China was hard to predict. As the world's largest player in both cotton and textiles, China, like India, must strike a balance between adequately compensating its cotton farmers and providing raw materials at competitive prices to the textile sector.

China has very large stocks; a big appetite for cotton; and little public information. If it decides to reduce stocks, prices could decline; if they increase stocks, prices could rise.

However, he estimates that this year, cotton prices would be lower than last year, though these would be more than the government's minimum support price of Rs 4,050 a quintal for long-staple cotton.

A study by S Parasuraman and T Rajaretnam of the Tata Institute of Social Sciences shows 40 percent of Vidarbha's farmers own between two and five acres of land that yield an average 6.5 quintals of cotton each. Only 10 percent of these households have irrigated land.

In Parsodi, farmers are making their own calculations as cotton planting costs about Rs 15,000 an acre. In a good year, the yield could rise to 10 quintals to the acre, which means a reasonable profit of Rs 25,000 an acre.

But if the farmers are forced to sow fields thrice this year; input costs goes up a great deal. With farmers taking loan of about Rs 30,000 from a private money lender at five percent a month, or 60 percent a year, farmers needs to sell their produce early to pay off their loans, rather than hold on to the cotton until the price is right.

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