Kharif crops sowing season for marketing year 2022-23 is now in full swing, with higher target output fixed for all major cash crops. Raising output across crops that otherwise compete for farmer’s interest means consistent improvement in productivity. Unfortunately, higher prices for nearly all major inputs – from urea and phosphate to diesel and pesticides – means maintaining growth in productivity may pose a significant challenge in the ongoing season.
Thus, crops that will succeed to raise output will most likely be those that wrangle a share in acreage from substitutes. Naturally, like all profit-maximizing enterprises, farmers must also base their crop selection on the principles of return on investment; selecting crops that hit the optimal balance between required initial capital, risk aversion to adverse conditions such as extreme weather, and market pricing.
Cursory analysis indicates that cotton crop is finally back in business this year. According to average cost of production data published by Punjab government, cotton crop may offer return of upwards 50 percent in the ongoing season if prices maintain their recent trajectory. Globally, cotton prices have shot up and are at their highest levels since H1-CY11, with forecasts indicating that world prices may not climb down any time soon.
In fact, even if cotton prices were to fall by 20 percent between now and harvest period, cotton crop may offer higher per unit profitability compared to all other competing crops including maize, basmati rice, and sugarcane. Yet, initial surveys suggest the crop is struggling to make significant inroads, with best case forecast of no more than 10 percent rise in acreage on national basis.
Why? Because farmer profitability is determined not by profit per unit of output but per unit of land employed. Although cotton prices have escalated significantly compared to cost (when measured in weight), land is available in finite quantum. And despite significantly higher per unit prices, the difference in yield per unit of land is so stark between cotton and competing crops that farmers may choose to prefer substitutes due to their significantly higher yields. It must be emphasized that according to Gov Punjab, average cost of production at Rs80,000 per acre is similar for most competing crops, yet cotton is still losing out by a wide margin.
Consider that over the last ten years, average yield of cotton crop in Punjab province has declined by nearly 10 percent. Compare this to maize crop – whose per unit production cost is fast catching up with market prices – but managed to maintain its share due to 45 percent rise in average yield. Similarly, average sugarcane yield in the province rose by 24 percent over the last decade, partly explaining why the two crops have managed to give cotton a run for its money during that period.
Of course, productivity improvements alone cannot explain the full picture. Consider that while yield enhancement of basmati rice has been very stunted, significant profit margins helped retain farmers’ interest.
Pricing alone it seems cannot be sufficient in converting farmers over. While it is true that the margin offered by cotton crop may be lucrative enough to attract some growers, until the productivity challenge is resolved, restoring the past glory of cotton crop will remain a distant dream. Meanwhile, farmers who have managed to turn to substitute crops have earned handsome profits in recent years. That should bring policymakers some solace.
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