Increased cotton yield triggers price debate

Increased yield per hectare and area under cultivation have propped the cotton crop this season (October 2004-September 2005) to an all-time high of 232 lakh bales, a 31 per cent growth compared with last season's 177 lakh bales, according to the figures given by the Cotton Advisory Board.

The good news has triggered an intense debate among the growers, traders and consumers over the price change.

The traders and consumers are projecting a glut and crash in prices while the growers are confident that there is enough monthly demand to take care of the rise in supply.

According to National Agricultural and Marketing Federation of India (Nafed) and Cotton Corporation of India (CCI) prices will fall.

"We expect the production to reach 240 lakh bales this year. We do not see a similar jump in consumption though it is also on the rise. The prices are likely to fall below the minimum support price (MSP) and we are working on new strategies to counter the fall," said Alok Ranjan,managing director,Nafed.

CCI expects production to settle at 238.5 lakh bales. "Our consumption estimates suggest that around 198 lakh bales will be used by the domestic market and another 12 lakh bales will be exported. This leaves us with a surplus of 49 lakh bales including the 22 lakh bales carried over from last year," said an official from CCI.

Meanwhile CAB will meet various industry associations as well as Nafed and CCI next month to review the situation and update its estimates. The board is expected to take a fresh stock of the consumption scenario and fix up the MSP accordingly.

However D K Nair, Secretary General, Confederation of Indian Textile Industry (CITI), dismisses projections of a significant fall in prices.

"Required price correction has already taken place. This year consumption has increased in tune with production and I expect prices to remain stable," he said.

Nair cites the 20 per cent fall in prices between 2002-03 and May 2005 to substantiate his claim. "The increase in the yield also shows that the farmers stand to gain even in case of a minor price correction," he adds.

Prerana Desai, Senior Research Associate, Refco commodities Pvt Ltd, is also optimistic that prices will remain stable.

"There could be minor alterations but no major fall. Overall international prices are higher and that will affect the prices. Though production has increased, consumption has also gone up," she said.