A day after Gujarat announced a bonus for cotton farmers, the prices of the fibre crop have shown a firming trend with the markets anticipating other states to follow suit.

Traders feel the bonus could further strengthen cotton prices even in a dismal export scenario.

Gujarat has already witnessed cotton being poured-in from neighbouring States including Rajasthan, Maharashtra and Madhya Pradesh. This flooding is expected to further escalate as farmers from other States would get lured by the higher prices.

“Cotton prices have shown firming trend ever since there were talks about a possibility of Gujarat government’s bonus announcement. Market price is already above MSP and is likely to remain firm,” said Bharat Wala, President, Saurashtra Ginners Association (SGA).

Gujarat, on Wednesday, announced bonus of ₹110 per 20 kg for cotton growers in the State.

According to the announcement, cotton farmers will get additional ₹110 on the Minimum Support Price (MSP) of ₹810 per 20 kg when sold to Cotton Corporation of India. Only those farmers, selling cotton at the CCI depots will be entitled for this bonus.

Swelling surplus

However, trade sources believe that firm prices would do more harm than benefit to the overall cotton value chain, especially at a time when export prospects remain bleak amidst higher supplies.

The Cotton Association of India expect total supplies of 46.3 million bales (of 170 kg each) during the current 2015-16 season including a domestic crop of around 37.5 million bales. India’s overall domestic consumption is estimated at 32.4 million bales and exports likely to be around 5 million bales.

“We expect surplus of around 8.5 million bales at the close of this season. In this scenario, we do not see higher prices to do any good to the cotton value chain. Already buyers are hesitant at the prevailing prices,” Shirish Shah of Bhaidas Cursondas & Co, a cotton trader from Mumbai.

Meanwhile, the growers in other cotton growing States such as Telangana, Andhra Pradesh, Maharashtra and Karnataka see the Gujarat bonus as a big positive and are expected to place a demand for a similar incentive with their respective State governments.

Demand in other States

“We had already urged the Telangana government to announce a bonus of ₹1,400 a quintal recently. Now with Gujarat announcing an incentive, we will renew our demand for declaring a bonus,” said Ravi Kannenganti, an official of the Rythu Swarajya Vedika and Telangana Rythu Joint Action Committee, an umbrella organisation of farmers group.

Kannenganti said the cost of producing cotton in Telangana is estimated at ₹5,500 a quintal and we want the government to declare the differential between the production cost and MSP as bonus.

Further, Kannenganti said that the Cotton Corporation of India should step up the procurement in the State.

In Karnataka, though the prices of the fibre crop have been hovering around support price levels on account of a lower output, it is anticipated that the farmers were likely to demand a bonus on the lines of Gujarat.

“Farmers are obviously going to demand a bonus. We are focused on ensuring that the procurement and payments are done on time,” said TN Prakash Kammaradi, Chairman of the Karnataka Agricultural Prices Commission.

‘Implement thru APMCs’

The spinning mills have also raised doubts about the successful implementation of the bonus scheme in Gujarat under procurement by Cotton Corporation of India (CCI).

Cautioning of a possible speculation and delay in the sale of cotton by CCI, M Senthilkumar, Chairman, Southern India Mills’ Association stated that implementing the cotton bonus system through CCI would hurt the interests of the cotton spinning mills.

“CCI has been historically quoting higher prices than the actual market price and commences sale only after a period of one or two months of procurement. Cotton bonus implementation through CCI would result in speculation, as CCI normally delays the sale of cotton,” Senthilkumar said in a statement, urging the State and Central governments to implement the bonus scheme through Agricultural Produce Market Committees (APMCs) instead. SIMA Chairman alleged CCI of adopting indiscriminate cotton trading policies.

“Several hundreds of cotton spinning mills have already become NPAs and most of the stand-alone mills are incurring cash losses. If the scheme is implemented through APMC, private ginners would immediately procure cotton and there will be a regular flow of supply in the market. Gujarat being the largest cotton growing state in the country, if the cycle of sale is disrupted, it would greatly affect the entire textile value chain,” he stated.

According to the latest data from the CCI, progressive procurement by the agency across the country till December 14 stood at 6,75,145 bales against the progressive arrivals of 72,77,100 bales. Majority of the procurement – about 4,84,441 bales – has been done in Telangana.

However, lower output in the drought-affected Karnataka has spelt some troubles for the ginners in the State this year who are seen scrambling for the raw material.

“We are operating at less than 20 per cent of our capacity,” said Ramanuja Das Boob, a ginner in Raichur.

Cotton prices in Raichur are hovering between ₹4,200 and ₹4,450 a quintal.