Cotton prices, which have fallen by over 25% in the last eight months, are expected to stabilise after the government on Wednesday increased its minimum support price (MSP) for the commodity for the 2023-24 marketing season by nearly 9% year-on-year.
The price drop had led to an unrest among cotton farmers who were holding on to their produce in expectation of better rates, creating a shortage of cotton in the market.
From a high of Rs 10,000 per quintal in October, cotton prices have fallen to Rs 7,200/quintal. Industry experts said that if the price fall continues, farmers may prefer to wait till the next season to sell at the new MSP of Rs 7,020/quintal.
“The increase in MSP of cotton will also help to cap the downward trend in cotton prices,” said BS Rajpal, a veteran cotton ginner from Maharashtra, which has the highest area under cotton in the country. “Instead of selling cotton at lower rates, farmers may opt to wait and sell cotton at the new MSP to the government in the next cotton season.”
The area planted under cotton is also likely to be aided by the increased MSP. “We were expecting a fall in cotton acreage before the government announced the MSP. However, now the area under cotton can increase by about 5%,” said Pradip Jain, president, Khandesh Ginning and Pressing Association.
With the increase in MSP, cotton processors are hopeful of getting enough raw material. “We couldn’t run our mills at full capacity as farmers did not bring enough cotton to the market this year,” said Avinash Kabra, a cotton processor from Dharangaon in north Maharashtra. “Any increase in cotton production due to increase in MSP will increase the supply of raw material for the cotton-based industry.”
However, the export-focussed spinning mills from south India cautioned that a hike in MSP without any increase in productivity of cotton can jeopardise India’s competitiveness in the international markets.
“Increase in MSP is not the solution to increase cotton production in India. We need to improve the productivity of cotton by bringing better technology and better seeds,” said Ravi Sam, chairman, Southern India Mills’ Association.
The increased MSP is higher than the prevailing market prices. Pushan Sharma, director – research, CRISIL Market Intelligence and Analytics, said, “The MSP has increased by about 9% on year, while the average mandi prices are 14-15% higher than the MSP. Thus, farmers may not be inclined to sell at MSP. This has been the case for the past two years and, consequently, cotton procurement at MSP has been negligent.”
Sharma added, “However, anticipating higher production in cotton for marketing year 2023-24, if mandi prices witness a decline, this higher MSP will bode well for farmer income in Maharashtra, Telangana and Gujarat, which are key cotton-producing states.”