P.K. Viswanathan N. Lalitha GIDR, Ahmedabad

1. Market Reforms and the dynamics of cotton trading in India:A comparative assessment of smallholder cotton producers in Gujarat and Maharashtra P.K. Viswanathan N. Lalitha GIDR, Ahmedabad

2. Outline of presentation • Backdrop • Why this study? • Research concerns • Objectives • Approach “It is not a good time to be a farmer in Vidarbha and it is almost suicidal to be a cotton grower” (A farmer leader)

3. I. Backdrop • Cotton, an important cash crop, though is grown in about 100 countries, six countries, viz., US, China, India, Pakistan, Brazil & Uzbekistan share 73% of world cotton area (35 million ha) and 80% of global cotton output (43 million MT) during 2005 (FAO) • Notable differences across these countries w.r.t the basic crop/ commodity performance indicators, viz.: area, production, productivity, trade, etc for reasons well documented How the majors perform?

4. Cotton: performance of global majors

5. India, despite having the highest proportion of cotton area (25%), occupies only the third position in cotton production (12-15%), and the lowest in terms of productivity • The decade 1995-2005 witnessed tremendous transformation in the production front as evident from the rise in productivity: 486 kg/ha (1995) to 749 kg/ha (2005)-the impact of technological breakthrough brought about by the hybrid cotton cultivars, followed by Bt technology, especially since 2002 • Four major states accounted for 74% of cotton area (of 88.17 lakh ha) and 73 % of cotton production (of 41225 lakh MT) during 2005- Gujarat (24,33%), Maharashtra (33, 19%), Andhra (11,12%) & Punjab (7, 9%), respectively

6. Area, production, yield of cotton in India-2005

7. Sharp contrasts in performance: Maharashtra, though has the highest share in area, lags behind Gujarat in terms of production, productivity being the lowest of all states- much lower than the national average • Low productivity of cotton has always been a serious concern in India vis a vis its counterparts • Since the commercial release of Bt varieties in 2002, there has been significant rise in area under Bt cotton, especially in Gujarat, Maharashtra, Andhra and the Punjab, though the exact scale and the magnitude of expansion are yet to be assessed (roughly 4 million ha)

8. Bt ‘cotton faddism’ and the small farmer • However, serious doubts are raised against the Bt technology, as much of its professed outcomes: higher yield, tolerance to pests/ plant diseases, etc are proven to be unrealistic and far from reality… • “That the ‘yield dividends’ arising from the Bt technology are realisable only under an input intensive farm management regime” becomes the harsh reality as evident from the emerging trends… • The reported higher yields do not get translated in terms of higher net returns at the farm level, due mostly to: • a) stagnating prices and the imperfections in the primary market; b) higher dosage of chemical inputs and pesticides that are required for realising the ‘optimum yield levels’ as claimed by the innumerable seed companies (approved/ unapproved/ spurious) operating at the farm level

9. Input costs of Bt technology is very high • Bt-cotton seed cost is 2-3 times higher • New insecticides are 5-6 times more costlier • Spurious seeds & inputs • Ploughing/weeding/picking/labour/spraying/transport costs increased 2-3 times • And…cotton market price was stagnant for 10 years

10. Cotton market prices (Rs. Per quintal) Stagnating prices may adversely affect cotton cultivation Farm level realisation is still lower due to the differential grading

12. II. Why this study? • Despite all, there is a definite trend towards adoption of Bt cotton all over (irrespective of the outcomes: positive/ negative) as emerge from the growing empirical evidences, particularly in Maharashtra, Gujarat, Andhra and Punjab • There is a clear vacuum of understanding as regards the emergent market dynamics in the wake of the diffusion of Bt technology • Whether the dynamism as seen in the input markets has its repercussions on the output market? • Whether the output realised from the Bt varieties have a definite stake in the market in terms of high quality output and bargaining of better prices? • No serious research has gone into understanding this dynamics

13. III. Research concerns • Trade reforms has resulted in significant restructuring of the domestic markets through which the various players try to bargain their stakes and keep it intact, adversely affecting the farm level prices • Imperfections in the output market have detrimental impacts on the efficient performance of the trading systems • The existing marketing interventions have become ineffective and less transparent in ensuring higher returns to the farmers and thereby not compensating for the high risks involved in the Bt cotton

14. India is an exception in the global cotton scenario as cotton production in rest of the dominant producing countries has been highly supported through direct and indirect subsidies, like income payments, input subsidies and export subsidies • This creates distortions in global trade in cotton and countries like India would be the worst affected in the long term • Imports under the OGL scheme has been on the increase in recent times • Input-output markets are interlinked and the farmers are indebted to intermediaries and money lender-cum traders who eats away much of the farmer incomes • Nexus between the co-operative marketing institutions and the private traders are strong enough to depress prices augmenting the farm crisis

15. IV. Objectives • Dynamics of the primary, secondary and the terminal cotton market and their linkages in the context of trade reforms • Role of the government support prices, domestic trade prices as well as the influence of the international cotton prices on the domestic market and prices • Trends in the spot and future prices of cotton in the past and their influence on production and domestic market operations • The various reform measures introduced by the government to organize cotton trading in terms of the institutional mechanisms and their performance • Diffusion of knowledge and training to the farmers to improve the quality of their product to get remunerative prices and the functioning and role of the markets

16. V. Approach • Study will be undertaken in five districts each of Gujarat and Maharashtra covering 200 farmers each • To reflect upon the marketing decisions of the cotton growers and their perceptions as regards functioning of cotton markets and the overall impacts of Bt technology on yield, prices, net returns and socio-economic, environmental and health aspects • Analysis of the trends in spot and futures prices of cotton in historic perspective in India vs its counterparts • Driving to policies for efficient and sustainable cotton production systems in India in the new era