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
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)
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?
Cotton: performance of global majors
Country
Area (% of
million ha)
Production (% of
million MT)
Productivity (Kg/ha)
1995
2005
1995
2005
1995
2005
India
25.48
25.44
12.36
15.47
486
749
China
15.29
14.47
26.83
26.46
1759
2252
USA
18.27
15.97
17.48
17.90
959
1380
Pakistan
8.45
8.87
10.14
10.28
1202
1427
Brazil
3.36
3.61
2.57
4.14
767
1412
Uzbekistan
4.21
4.21
6.71
5.73
1599
1677
Sub total
(mha/MT)
27
25
27
34
World (Mha/
MT)
35
35
36
43
1003
1231
% share
75
73
76
80
 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 2005Gujarat (24,33%), Maharashtra (33, 19%), Andhra (11,12%) &
Punjab (7, 9%), respectively
Area, production, yield of cotton in India-2005
State
Area (% of lakh
ha)
Production (% of
lakh MT)
Productivity
(kg/ha)
Gujarat
23.56
32.99
655
Maharashtra
32.77
18.97
270
Andhra Pradesh
11.02
12.37
525
Punjab
6.58
8.66
615
Others
26.07
27.01
484
All India (ha/MT)
88.17
41225
467
4 states
74%
73%
 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)
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
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
Cotton market prices
(Rs. Per quintal)
Year
Support price (Rs.)
Market prices (Rs.)
2001-2002
1840
1650-1825
2002-2003
1860
2025-2395
2003-2004
1910
2239-2900
2004-2005
1960
1620-2130
2005-2006
1985
1950-2149
2006-2007
2005
2150-2500
2007-2008
2055
-
Stagnating prices may adversely affect cotton cultivation
Farm level realisation is still lower due to the differential grading
Trends in cotton prices in India (USD per kg)
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
0.44
0.37
0.36
0.36
0.36 0.35
0.35
0.35
0.35
0.33 0.33 0.33
0.33 0.33
0.40
0.40
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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
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
 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
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
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