ANALYSIS: Cotton Price Policy: gains
and losses to farmers
By M. Shafi Niaz
The government announced the support price of seed-cotton (phutti)
at Rs900 per 40kg for the 2003-04 crop, which was
substantially higher than the last year's Rs850.
The total production of the crop was about 10 million bales.
This was short by 2-3 million bales than the requirements of
domestic industry.
Because of this imbalance between the supply and demand
situation, and the overall shortage in the world market,
which forced the international market to rule high, all
these factors impacted on the domestic price scene. The
evident result was that the prices in the local market
prevailed much higher than the Government declared price.
GROSS RETURNS TO FARMERS 2003-04 CROP: Information
available gives a range of Rs1000 to Rs1800 of phutti
prices, which the farmers received. Experts who were
following the trend of phutti price behaviour estimated that
the average price received by the farmers would be about
Rs1200 per 40 kg.
Assuming that the total production of about 10 million bales
(one bale = 170 kg) was sold in the market at this price,
the farmers would have likely pocketed about Rs153 billion.
Most of this money must have found itself in the market,
which should have been able to accelerate the activities
particularly in the rural areas.
The impact on the net income of the farmers would of course
be much less as the cost of production, which they had
incurred to produce the crop in which the expenses incurred
in controlling pesticides and insects would be very high as
the crop in many areas was quite seriously affected.
CROP OF 2004-05: The lucrative prices received by the
farmers (for the 2003-04 crop) induced them to bring more
area under cotton in the following year (2004-05) despite
the fact that shortage of water was experienced in many
parts of the Punjab and Sindh, the main growing provinces.
They therefore seemed to have decided to reduce the area
under sugarcane, which is a high water-delta crop and
competes cotton in some areas. The result was that the area
under cotton increased from about 3 million hectares in
2003-04 to 3.14 million hectares in 2004-05, an increase of
4.7 per cent.
The area under sugarcane showed a decline of 74,000 hectares
in the two years compared. Water saved from the cultivation
of one acre of sugarcane would be approximately enough to
raise 1.5 acres of cotton.
The weather during the growing period of the crop remained
quite favourable and luckily no disease or insect attack was
noted to have any significant effect on yield per hectare.
The result is that the production of the crop is recently
estimated as 12.1 million bales by the Ministry of Food &
Agriculture. There is, however, a strong belief amongst
those interested in this crop that the production would be
around 13 million bales.
LOSS TO GROWERS IN 2004-05: The higher domestic
production, the international prices ruling lower than last
year because of large world output; much more than the
anticipated consumption, had a dumping effect on the
domestic cotton prices.
Information coming from the field indicates that the price
of phutti has been selling much lower than the support price
of Rs925 per 40 kg. Only numbered cultivators might have
received Rs900/- or even Rs925 but majority of them have
been getting around Rs850 or even less.
It has been estimated by knowledgeable persons that on an
average the farmers received at least about Rs850/-, if not
less. This means that from a crop of about 13 million bales,
the farmers would be receiving gross returns of about Rs141
billion.
This is even less by Rs12 billion (against Rs153 billion)
than received last year. However, the net income to the
farmers would be less by the cost of cultivating the crop.
One thing to be noted is that the cost of growing the crop
during 2004-05 would be comparatively lower than that
incurred during the last year because of the few expenses on
the spraying of the crop as the incidence of the insects and
disease was much less than last year.
LOSS TO FARMERS DUE TO THE LACK OF PROPER IMPLEMENTATION
OF SUPPORT PRICE: The only purpose of announcing the
support price was that the farmers should get at least that
price in case the free market price rules prevailing lower
than the promised price.
Had the support price policy been implemented in true
spirit, the farmers would have received about Rs153 billion.
This made the farmers to suffer a loss of Rs12 billion.
GAINS TO GINNERIES AT THE COST OF FARMERS: The
Government made the Trading Corporation of Pakistan (TCP) as
the implementing agency by giving it a free hand to purchase
from the market as much quantities of lint (phutti is not
purchased) as necessitated, so that cultivators get at least
the support price. Although the TCP has done its best and
has so far purchased about 1.3 million bales but it has in
no way helped the farmers as the phutti prices have not
moved beyond Rs850 or Rs860 at best.
As a result of the TCP purchase of lint from the ginneries
at its calculated price based on Rs925 per 40 kg of phutti,
the ginners have gained, unlike the claim made that the
ginneries that they purchased phutti from the farmers at the
Government set price, no farmer, according to an
information, received that price. They sold phutti, on the
average, at Rs850 per 40 kg.
Therefore, the ginneries make a profit of Rs75 for each 40
kg of phutti purchased and lint sold to TCP. The amount of
phutti when translated from 1.3 million bales comes to about
16.4 million 40 kg. For the purchase of this amount of
phutti, the ginners made a profit of about Rs1.2 billion.
With more purchases made by the TCP, more profit would be
reaped by the ginneries unless the market price of phutti
escalates beyond Rs850. The profit will decrease with every
rupee the price of phutti goes up in the market.
CONCLUSIONS AND SUGGESTIONS:
i) The implementation of the support price policy, despite
all given efforts, has not produced the desired result
because the farmers had to sell their produce much below the
support price level. The estimated loss to the farmers is
about Rs12 billion.
ii) Without the effective implementation of support price
during 2004-05, the gross returns to the farmers were less
by Rs12 billion despite the fact that the total cotton
produced during this year was about 3 million bales more
than in the previous year.
iii) The ginners seem to be making profit for every amount
of lint sold to the TCP. The profit is equal to the
difference between the support price and the price at which
the farmers sold his produce.
The ginners seem to be making a profit on an average of Rs75
per 40 kg of phutti purchased. They therefore could have
made a profit of Rs1.2 billion on the amount of lint (1.3
million bales) so far sold to TCP.
In addition to the above conclusions leading to effective
and efficient implementation of the support price policy,
there are some other important suggestions relating to the
marketing of cotton, these are:
i) The lint price, as understood, is not scientifically
determined from the phutti price. It is probably done on a
thumb-rule basis. In the past, if the author's memory is not
failing, this used to be done in the beginning by the
Ministry of Commerce and later on the responsibility was
passed on to the Agricultural Prices Commission (APCom) but
the summary was submitted through MINFAL and Commerce
Ministry to the ECC.
The phutti price was decided by the Cabinet and the lint
price by the ECC. There is a need for improving the
determination of lint prices. Cost of ginning operation is
an important factor involved.
ii) The procedure for the estimation of cotton production
needs to be reviewed. The Cotton Crop Assessment Committee
should preferably be presided over by an independent person,
not having direct interest in production levels and not by a
Minister or Minister of State as the participants are
reluctant to give their objective views in their presence.
The main idea is that the Committee should not be got
influenced by interested personalities. During the cotton
season, it should meet, at least fortnightly, if not more,
depending on the crop situation. This would help reduce the
uncertainty about the size of the crop being created by
different agencies.
iii) In order to make the implementation of the price
policy, the TCP needs to have more and experienced staff.
The winding up of Cotton Export Corporation (CEC) has been
controversial, which apparently was done under the influence
of the international financing agencies perhaps based on
faulty information. With the passage of time, it becomes
clear that it was perhaps not the correct decision.
Courtesy: The DAWN
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