In a moment of light heartedness, the finance minister was recently heard commenting that he draws inspiration by listening to music every morning. It appears that the officials in his ministry, bent on staging a cotton revival, are listening to wrong kind of music.
If lessons are to be drawn from music after all, cotton’s policymakers may be well advised to give a close listen to Rolling Stones. Their single-minded fixation on increasing cotton’s area under cultivation by reducing cultivation of alternate crops is bound to backfire, yet the consensus seems to be building in that direction.
The argument made for reduction of cultivation of alternate crops is based on mushroom growth in net cotton imports witnessed since FY16 onwards. After all, that year cotton production had declined by 29 percent, a YoY decrease not seen at least since FY92.
However, purposeful ignorance is maintained towards the fact that the contraction in output came on the back of decline in yield which within one year dropped from 802 kg per hectares to 582 kg; whereas planted area had only reduced by 2 percent.
Over the last three decades, area under cotton cultivation has remained stagnant, even as area under major kharif crop cultivation has increased by 1.23 million hectares (using 5-year averages for periods FY91-FY95 and FY15-FY19P).
During this time, the three alternate crops have captured greater share in cultivated area, with share of paddy increasing by 4pp, sugarcane by 1pp, and maize by 3pp. This translates into additional land for rice, sugarcane, and maize to the tune of 0.68 million, 0.26 million, and 0.36 million hectares respectively.
The concurrent decline in area under cotton cultivation during this period was less than 0.07 million hectares. It is pertinent to note that the primary driver for greater share of competing crops in area was improved yield, which increased by 1.66 percent for rice, 1.42 percent for cane, and 4.27 percent for maize during the same period.
While it is correct that the substantial reliance on imported cotton erased close to $1 billion on average in net crop-based earnings, it will be wise to analyse the forces at play.
One, cotton’s net import bill was at lowest back in FY12 when cotton prices had surged upwards $3,450 per ton in international markets. This weakness in cotton import did not last for long as import bill recovered as soon as global cotton prices collapsed in the subsequent years, declining to as low as $1,540 per ton by FY16.
By FY16, cotton net import bill surged upwards $1 billion for the first time in country’s history. Over valuation of rupee also played its role in pushing the fibre crop’s import bill.
What will the country gain by substantially increasing land under cotton cultivation at the expense of competing crops? If history is any guide, without substantial gains in yield, there is no guarantee that greater area will bring materially improved output. For one, export performance of last eighteen months indicates that rice exports are showing signs of slight recovery thanks to adjustment of rupee-dollar parity. Recall that rice exports had also suffered significantly from overvalued rupee during FY15-17 period.
When international prices continue to be the primary driver for cotton production and output, the government interventions in the market place can only go so far in incentivizing its cultivation. If that comes at the cost of other crop-based exports, is it really worth the trouble?
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