Cotton marketing fails Vidarbha farmers

Vidarbha’s beleaguered cotton growers are staring at disaster in the New Year.

The deepening agrarian crisis has ripped the economy of the region, which grows about 75% of cotton produced in Maharashtra. About 150 cotton farmers have ended their lives in the year gone by. The spell of suicides continues even in the harvest. The last two years have seen inadequate rainfall. The irrigation scenario is frustrating and water resources are fast drying up.

With all this, an unregulated open market and private usurers have tightened their noose around the debt-ridden cotton farmers. Worse still, the Bharatiya Janata Party-Shiv Sena saffron opposition is savouring the malady for its petty political gains as much as the ruling Democratic Front (DF) does.

Consider this: The Chief Minister, Vilasrao Deshmukh, inaugurates a sugar mill started by a co-operative presided over by Leader of Opposition and the BJP’s Maharashtra President Nitin Gadkari in the Orange belt of Vidarbha during the winter session of Maharashtra Legislature in December 2004. There, he adds insult to the injury of cotton farmers. “Cotton is no more a paying crop, you must grow sugar-cane like western Maharashtra farmers,” he suggests. As if growing water-intensive crop like sugar cane in a region lacking irrigation is a sweet way to face a bitter crisis.

Two days after the inauguration, three marginal farmers end their lives in Yavatmal and Akola, the districts in distress, at a time when cotton procurement had just started. But the legislature session is wound up without any discussion on the issue. Farmers’ leader Vijay Jawandhia at Wardha says with concern: “It’s not a good time to be a farmer in Vidarbha and it is almost suicidal to be a cotton grower.”

State run monopoly riddled in crisis

Until a year ago, Maharashtra was the only state in the country with a state run monopoly scheme to procure cotton from the farmers. The Maharashtra State Cotton Growers’ Marketing Federation, a state government appointed body, purchased cotton from farmers at an assured price, and then sold it in the open market to the mills and traders. The body never had a farmers’ representative.

The scheme ran well till mid-nineties. Farmers did not make big profits then, but were at least assured of returns that did not fluctuate. But maladministration and rampant corruption saw the Federation sink in huge debt, and the state government never bothered to set the things right. The Federation also became a coterie of political leaders who had failed to get a cabinet berth.

Around 1994, the Federation wanted to procure cotton at cheap prices. The manipulation in gradation of cotton varieties began then. Good quality cotton was graded as low variety yield and priced accordingly. Also around the same time, the huge influx of cotton imports led to the Federation beginning to incur losses, since it could not resell its procurement at higher prices. The grading malpractice still continues, with farmers ending up earning less.

It was the season of 1995-96 that spelt the first signs of doom for farmers. The Federation, already in losses, failed to make timely payments to the growers. The BJP-Sena government had raised the Federation’s procurement price to Rs 2,100 that year from Rs 1,700 per quintal, to woo a constituency that was hitherto a Congress stronghold. The Federation had no say in the government’s decision.

In Maharashtra, cotton is procured from farmers from Rs 1700 to Rs 2500 per quintal depending upon the variety. Vidarbha grows a variety that fetches an average of Rs 2100 per quintal. (one quintal = 100 kg)

The Federation defaulted in paying dues to farmers and went into financial doldrums. Without cash, farmers took the stick the hard way. On the one hand, the year had seen fertilizer and seed prices double up. Costly hybrid seed varieties had flooded the market, riding on the state government’s dictates. Farmers were forced to take loans from the banks and institutions for the next agriculture season at whopping interest rates. The debt trap spread.

The central government’s policies hurt farmers here too. For instance, while the sugar import duty steadily rose to over a hundred per cent, the duty on cotton declined to ten per cent in 1997. That year, local markets crashed for the first time. That was also the year when Vidarbha first heard of farmers’ suicides. Since then, hundreds of farmers have ended their lives, unable to find avenues of bailing themselves out of the crisis.

Monopoly goes, mess worsens

As the crisis was unfolding, unregulated seeds and fertilizers penetrated remote villages. In the 2003-04 fiscal year, the state government discontinued the procurement monopoly and opened it up, with the Federation still remaining a player. This was also the year when cotton produce plummeted in Australia and the United States, driving up demand for Indian cotton. International prices for cotton were good.

With procurement now opened up, traders in Vidarbha procured cotton from farmers directly at Rs 2800 to Rs 3200 per quintal in 2003 and sold it at much higher prices in the international markets. Even the Cotton Corporation of India had opened the procurement centres in Vidarbha. But traders also made further merry of the situation. Many traders had become money lenders to the farmers by then. Some traders have seed and fertilizer shops known as Krushi Kendras in the Vidarbha region. They milked the farmers for cotton against recovery of their loans.

The state-run Federation could have also bought from the farmers to make up for its own losses. But it managed to procure only 3200 quintals of cotton that year, 2003-4 as against an annual average of 200,000 lakh quintals. Why? The key reason was that private traders offered a higher price to the farmers that year, and two, traders make a one-time payment to farmers, but the Federation does not. Also, traders purchase the cotton at farmers' doorsteps thereby saving transportation costs for farmers. To sell to the Federation, farmers have to bear the transportation costs on their own.

This year

This agriculture season, 2004-5, things went the other way. International prices declined drastically. Also, delayed rainfall in Maharashtra resulted in the first two sowings (June-July 2004) in some districts failing. Vidarbha's cotton yield, usually expected in November, declined considerably. But the Federation wrongly claimed in the first week of December 2004 that there had been a “bumper crop” in the state. (Produce usually reaches markets in December after plucking.) The Federation's statement was enough to bring about a price crash in the local procurement markets dominated by private buyers and emerging moneylenders. Private traders offered a mere Rs 1500-1700 per quintal to the cotton growers.

The Federation however has been of the “competent buyers” in the open market this season. At the dictate of the state government, it announced the minimum guaranteed price of Rs 2500 per quintal for the best variety of cotton. The state government says it has made it mandatory for any buyer (traders included) to procure cotton at a price not less than the minimum guaranteed price. Ironically, as Kishor Tiwari of the Vidarbha Jan-Andolan Samiti tells us, "The traders don't follow the rules, and there's no mechanism with the government to ensure that they gave minimum guaranteed price to farmers."

There were two options for the farmers who had cotton to sell. To sell to private buyers at the rates fixed by them for a one-time payment or to sell the produce to the Federation and wait endlessly for it to pay the money. Many farmers preferred the first option. They got the cash immediately and as in 2003 they also settled, in several cases, the loans with their buyers, who were also their lenders.

But more was to transpire. Even as its statement about “bumper crop” enabled local traders to buy cotton at low prices, its own offer of a higher MSP, triggered a flow of cotton towards it. Private traders under the garb of local farmers and other farmers made a beeline outside the Federation’s centers. Traders sold cotton to the Federation at profits. And to sell to the Federation, they misused the green cards of the cotton growers.

“The farmers naturally prefer cash in one installment. They sell their cotton to the traders, who then cart the cotton to the procurement centres, bribe the graders so that they certify the yield as the best variety, and pocket the huge commission. A trader earns a minimum Rs 400 for every quintal of cotton sold. It’s a whopping income. Going by the average procurement, a few traders would make a minimum Rs 8 crore, just in commission,” explains Kishor Tiwari of the Vidarbha Jan Andolan Samiti.

And more. The Federation’s price offer was also much more than the prices in Andhra or Gujarat. Even the rate of Rs 2100 for an average quality grown in Vidarbha was more than procurement prices in neighbouring Andhra Pradesh or Gujarat. The farmers of those states transported their produce in Maharashtra. Outstation farmers also tied up with the local farmers. They also used the green cards of the locals to channel the produce in to the Federation procurement centres.

Still, how is the Federation going to pay for all its procurement this year?

The payments are still to be made. But whenever the Federation pays (with losses borne by the state government exchequer), it will be at the rate of Rs 2100 to Rs 2500 depending on how it graded the cotton. And by all indications, payments are not going to be less than Rs 2100 per quintal. The Federation has said that the money will be given in three installments, but it has not fixed any time frame. It could take a year or more. For its part, the state government has recently promised to make financial arrangements for the Federation.

But the traders are willing to wait.

It was only at the end of December that the Chairman of the Federation, N P Hirani, conceded that yield in Vidarbha itself was indeed less. Hirani also confirmed that Maharashtra had seen a lot of influx of cotton from the other states -- Andhra Pradesh and Gujarat. Nearly 70% of the two hundred thousand quintals of cotton procured by the Federation, was from outside the state, he admitted.

Originally setup for the benefit of the state's cotton farmers, the Federation has trapped itself and farmers in a vicious cycle. First it delays and defaults on payments. This forces the farmers to go for private loans. Indebted and cash-strapped, they sell their produce to the private lenders at low prices for quick cash and more loans; the loss riddled Federation's continually poor payment cycles do not help. The traders themselves then sell back the cotton to the Federation illegally. In the meantime, the Federation is in need of bailouts from the government, which traders know will come.

Next: 2004 saw Maharashtra go the polls and the incumbent government offer freebies to farmers. But farmers problems only worsened as they entered 2005. The concluding report.