Centre Procures 25 Per Cent Of India’s Cotton Production Under MSP Operations, Helps Lift Prices Higher

Cotton growers in India have benefited immensely from the Narendra Modi government’s minimum support price (MSP) operations with the Cotton Corporation of India (CCI) procuring about 25 per cent of the crop estimated to be produced this season (October 2020-November 21).

A feature of this is that cotton prices are ruling higher than MSP despite a record carryover of stocks this season and production at par with last season.

The Committee on Cotton Production and Consumption (CCPC) — a body represented by growers, traders, textile industry and officials of ministries of Textile and Agriculture — has estimated the carryover stocks at 120.95 lakh bales (170 kg each) for the current season.

According to the Cotton Association of India (CAI), a body of traders and exporters, the carryover stock is estimated to be 125 lakh bales.

The situation of high carryover stocks arose due to the lockdown announced by the Centre in March last year to tackle the spread of novel coronavirus (Covid-19) pandemic.

This resulted in the textile industry, particularly spinning and garment units, shutting down and production began in full swing after September only.

The CCI, operating the MSP system to ensure that prices rule above support level for most part of the current season, has procured 91.13 lakh bales as on 9 February. Procurement under MSP began on 1 October.

According to the Ministry of Consumer Affairs, Food and Public Distribution, at least 18.85 lakh cotton growers have benefited from the procurement so far.

The procurement also comes at a time when the CCPC had estimated the crop this season at 371 lakh bales against 365 lakh bales the previous season.

CAI had estimated production at 360 lakh bales, same as the previous season.

The US Department of Agriculture has pegged Indian cotton production at 371 lakh bales against its initial projection of 377 lakh bales after rains affected the crop to some extent in states such as Telangana and Andhra Pradesh.

The CCI cotton purchases have come at a time when the Centre is facing protests from farmers in parts of Punjab, Haryana and Uttar Pradesh against the three agricultural reforms that have been enacted in Parliament in September.

One of the reasons for the farmers opposing the reforms is that they have been made to believe that the MSP will end soon as also operations under the support price system.

Prime Minister Modi, addressing Parliament, this week has firmly denied the rumours, saying: “MSP has been there, MSP is there and MSP will be there”.

At the beginning of the season, CAI president Atul Ganatra had predicted that CCI could be procuring over 100 lakh bales this season as part of the Centre’s MSP operations and it could be even as high as 125 lakh bales.

The USDA, in its report on “Cotton: World Market and Trade”, has said the cotton MSP procurement has been significant this season after 2014-15, when 30 per cent of the crop was procured by the CCI.

The MSP operations, then and now, have removed large volumes of cotton from the market during the peak harvest season.

“The effect of the MSP program(me) is that it delays cotton from entering the commercial market, thus supporting prices while providing cash to farmers,” the USDA said.

It admitted that the cotton procurement was akin to the US marketing loan programme in which the “producers determine when the cotton returns to the market”.

On 10 February, raw cotton on kapas was quoted at Rs 5,700 a quintal in Gujarat’s Rajkot district, an important region for the fibre production. Quality kapas fetched over Rs 6,000 a quintal.

In Punjab’s cotton-growing regions, too, kapas are ruling over Rs 5,600 a quintal with the rates topping Rs 6,000 in Muktsar Agricultural Produce Marketing Committee mandi.

The current prices are against the MSP of Rs 5,515 a quintal fixed by the Union government for the current season.

Besides, procurement by CCI under MSP operations, cotton prices have also gained on global prices increasing in view of total production across the world being projected at a four-year low.

In the domestic market, the pent up demand for yarn has helped to keep the prices firm, though there are no worries over cotton supplies, the raw material.

The USDA has forecast global cotton production at 113.9 million bales of 217 kg (24.71 million tonnes) this season against 122.14 million bales (26.5 million tonnes) a year ago. This will be the lowest global cotton production since 2016-17.

As a result, cotton prices on New York Mercantile Exchange have increased 8.28 per cent since the beginning of this year to 84.79 cents per pound (Rs 48,716 per candy of 356 kg).

In contrast, Indian Shankar-6 cotton, a benchmark for exports, is quoting at Rs 44,300-44,500 a candy.

On Multi Commodity Exchange, cotton futures for delivery in March are currently ruling at Rs 21,660 a bale or Rs 45,358 a candy.

India’s competitive pricing has helped it gain good export volume in the global market.

Rajkot-based raw cotton, yarn and spinning waste trader Anand Poppat said that at least 33 lakh bales have been exported from India until last week since 1 October.

CAI president Atul Ganatra said that his association has projected cotton exports lower at 54 lakh bales from the initial projections of 60 lakh bales.

However, the CCPC has estimated that cotton exports could top 75 lakh bales, a record in recent years.

The cotton export estimates are against shipments of 47.4 lakh bales last season.

Bangladesh, Vietnam, Indonesia, Turkey and China have been buying good volumes of cotton from Indian, resulting in the buoyant trend.

Poppat said that prices are likely to rule firm this season since farmers are smart in reaching their produce to the markets.

“A majority of the cotton stocks are with farmers who are capable of holding until they get good prices and they are bullish,” he said.

The other reason for cotton prices likely to rule firm is that demand is expected to increase domestically as well as abroad, particularly China.

Despite all this, CCPC has estimated that India could still carry over a high 97.5 lakh bales of cotton stocks to the next season, while CAI has estimated it at 115 lakh bales.

In comparison to cotton MSP procurement, the Modi government has procured at least 40 per cent of the estimated Kharif rice production this year with the Food Corporation of India and other state agencies buying 62.22 million tonnes of paddy.

The paddy from states such as Punjab, Haryana, Uttar Pradesh and 18 other states can yield a little over 41 million tonnes of rice. This is against the Ministry of Agriculture and Farmers Welfare first advance estimate of rice production of 102.3 million tonnes.