Drowning cotton's lifebuoy

The Maharashtra government stands accused of failing to put in place adequate support mechanisms for the State's cotton farmers in a bad year.

THIS harvest season, Nirmala Nehare, a cotton farmer from Dhamanagar village in Wardha, was thrown to the wolves. She was compelled to sell her meagre crop cheap to trader-moneylenders as not only did the climate fail her but the State government refused to pay the full amount immediately while procuring cotton. For peasants like Nirmala already on the brink of bankruptcy, this has meant a further loss.

Insufficient rain and a vicious pest attack on her crop reduced Nirmala's harvest to eight quintals, a fourth of the normal harvest from her 2.8 hectares of land. Nirmala decided to sell her produce to the moneylender at Rs.1,800 a quintal, instead of selling it to the Maharashtra State Cooperative Cotton Growers' Federation at Rs.2,175. "Our hands are tied. We had to sell it to the trader. The government would pay in four instalments. Right now, they give only Rs.1,400 a quintal, while the rest will be paid next August. We cannot wait. Interest on the Rs.10,000 we borrowed keeps accumulating at Rs.1,000 every month, she says.

Although she was unable to sell her crop to the Cotton Growers' Federation, Nirmala feels that the monopoly cotton procurement scheme (MCPS) offers her some security. "Without it, we would be completely at the mercy of the middlemen; they would lower the prices further. At least now, they cannot offer much less than the State's guaranteed price," she says.

The unique scheme appears to be serving its purpose - to protect cotton farmers from being cheated by traders and to ensure them a fair price for their crop by eliminating middlemen. This despite the State's failure to pay farmers properly this year owing to financial problems. Started in 1972, the scheme has been yielding profits, and until 1995 distributed 75 per cent of the surplus to cotton farmers. Then, international cotton prices started crashing and the scheme accumulated losses of Rs.2,795 crores. Interest on this liability is Rs.1.35 crores a day. This year, for the first time, the Reserve Bank of India (RBI) delayed sanctioning the full loan amount of Rs.1,700 crores required by the cotton federation to procure the harvest. So far it has sanctioned only Rs.900 crores.

The Democratic Front (D.F.) government said it would pay only 80 per cent of the Central government's support price for cotton (which is approximately Rs.1,875, but depends on quality). The balance of the price guaranteed by the State (averaging Rs.2,175) is to be paid in three instalments. The Opposition parties were quick to take advantage of the situation. They raised the issue quite forcefully during the Assembly session held in December in Nagpur, the heart of Maharashtra's cotton-growing Vidarbha region. The Bharatiya Janata Party joined the Shetkari Sanghatana, whose leader Sharad Joshi led a rail roko agitation in December, in demanding that the farmers be paid the full support price and the balance of the State guaranteed price later. The government caved in and offered to pay 90 per cent of the support price. Joshi relented and withdrew the agitation.

Ironically, at various points in time, both the free-market proponent Joshi and the predominantly trader-funded BJP have demanded the scrapping of the scheme.

Ever since the MPCS was introduced, a motley group of traders, bureaucrats, politicians and activists have been demanding the scrapping of the scheme. But 30 years later, it still survives. While many would attribute this to vote bank politics, the fact is that the scheme is a major reason why Maharashtra's 30 lakh cotton farmers have managed to stay afloat.

With globalisation worsening the agricultural crisis, farmers' profitability has been eroded severely. Production costs have multiplied in the last decade owing to cuts in input subsidies. Rural credit and infrastructure investment have shrunk. Bank loans account for only 11.7 per cent of agricultural credit, leaving cultivators at the mercy of moneylenders. Farmers have also been squeezed by the fall in market prices owing to imports and price collapses in the international commodity markets. "If the procurement scheme was scrapped, we would all sink. The traders would have a monopoly, as they do for all other crops," says Rajendra Lone from Jamta village in Wardha. "This year, many people have had to sell to traders because it has been a bad harvest and the government is not paying the full amount immediately. Also, some farmers do not want the government to deduct the bank loan amount from the payment. They need money in hand. Otherwise, how will they run their homes?" he says.

Cotton farmers, not only in Maharashtra but also in Andhra Pradesh and Punjab, have been the worst hit by the farming crisis. In 1997-98, a severe pest attack destroyed the crop in Vidarbha, leading to more than 80 suicides. Thousands of suicide cases have been reported in Andhra Pradesh and Punjab's cotton belts as well. A local newspaper reported 35 cases in Vidarbha between April and November 2001. The government, however, tries to attribute the deaths to personal or psychological problems. ''All of us, rich and poor farmers alike, are facing similar hardships. It is just that some choose to end their misery by taking poison. Even large landowners are trying to sell off their land. But there are no takers," says Punjaram More from Mahakal village in Wardha.

Explaining his declining profitability, Rajendra Lone says production costs for his 15-acre plot were Rs.5,000 an acre. But banks provided only Rs.1,500 an acre as crop loans. The rest of the cost has to be met by borrowing from moneylenders at exorbitant rates of interest varying from 60 to 120 per cent per year. "How are we to manage? Costs keep rising, but prices have fallen by half for most crops. At least cotton prices offered by the government have been steady over the last five years," he says.

Although the MCPS is the only assurance farmers have of a fair price, there are many who think it should be scrapped. Some arguments are purely financial - to contain losses. "Maharashtra's guaranteed price is Rs.425 above the central support price. Moreover, since the international prices have fallen by half since 1995, we are now selling the procured cotton around Rs.1,500 a quintal, a 25 per cent loss," says Sunil Porwal, chairperson of the cotton federation. He feels that losses would be minimised if the monopoly element of the scheme was withdrawn and the State's guaranteed price was reduced to Central support price levels.

However, proponents of the scheme, such as secretary of the Peasants and Workers Party N.D. Patil, argue that the government cannot abandon its responsibility to farmers. "If the monopoly element was removed, the losses would increase. Traders would buy only the best quality cotton in the market, leaving the rest to the government, while the overheads of running the federation would continue. This is an indirect tactic to close down the scheme. Since no political party has the courage to do it outright, they will just make its implementation impossible," he says. The scheme is the only form of social security for Maharashtra's cotton farmers who produce 20 per cent of India's cotton, Patil asserts. "Around 97 per cent of cotton produced in the State is dryland cotton. Totally dependent on nature, cultivation is a gamble for them. This is their only protection," he says.

Sharad Joshi has been demanding that the scheme be abandoned since "it has been unable to secure for Maharashtra's farmers prices that compare favourably with those obtaining in the free markets in neighbouring Andhra Pradesh, Madhya Pradesh and Gujarat." Explaining the change in his stand during the December agitation, he says that "it was against the opportunist abandonment of the scheme in times of recession". Porwal says that since Maharashtra's guaranteed price is much higher than those obtained in other States, many traders from elsewhere sell cotton in Maharashtra.

The problem is not with the scheme but with India's trade and agriculture policy, says Kisan Sanghatana leader Vijay Jawandhia. "Indian farmers have not been adequately protected," he says. Domestic prices of cotton have fallen because of a low import tariff level of only 5 per cent on cotton as compared to 60 per cent for sugar, which is backed by a much stronger political lobby, he says. The textile industry lobby is also resisting any rise in import duty on cotton. "The textile industry imports cotton although there are sufficient domestic stocks. But why should millions of farmers be squeezed for the textile industry to run smoothly?" he asks.

Deriding the free trade argument, Jawandhia points out that no such thing exists. International commodity prices have fallen because developed countries continue to protect their agriculture by means of heavy subsidies to farmers and imposing high import tariffs. For instance, Japan has a 1,000 per cent tariff on rice imports. Each farmer in the United States got a subsidy of $29,000 in 1995, a hundred times more than what an average Filipino earns in a year. Subsidies account for 66 per cent of producer prices in Japan, 49 per cent in the European Union countries and 30 per cent in the U.S. Although India is allowed, under the World Trade Organisation agreement, to put up import duties ranging from 100 to 300 per cent on agricultural goods, it has chosen not to protect its farmers.

While farmers struggle to keep their head above water, whether Indian agriculture sinks or not finally depends on what policies the government chooses to adopt. Only by turning the tide on liberalisation can the government prevent small farmers like Nirmala from being left to brave the winds alone.