Cotton Market Anticipates ‘Stability’ as MSP Witnesses 9% Surge

Cotton prices, which have experienced a significant decline of over 25% in the past eight months, are expected to stabilize following the government's decision to raise the minimum support price (MSP) for the commodity for the 2023-24 marketing season. The MSP has been increased by nearly 9% compared to the previous year.

The sharp drop in cotton prices had caused unrest among cotton farmers, who were holding onto their produce in hopes of securing better rates. This situation led to a shortage of cotton in the market. From its peak of Rs 10,000 per quintal in October, cotton prices have plummeted to Rs 7,200 per quintal. If this downward trend continues, farmers may choose to wait until the next season to sell their cotton at the new MSP of Rs 7,020 per quintal.

BS Rajpal, a seasoned cotton ginner from Maharashtra, the state with the highest cotton cultivation area in the country, expressed optimism about the increase in MSP. According to him, he believed that the increase in MSP of cotton would also help to cap the downward trend in cotton prices. He suggested that instead of selling cotton at lower rates, farmers might choose to wait and sell cotton at the new MSP to the government in the next cotton season.

Pradip Jain, president of the Khandesh Ginning and Pressing Association, mentioned that they had anticipated a decrease in cotton acreage before the government announced the MSP. However, he stated that now the area under cotton could increase by about 5%.

Avinash Kabra, a cotton processor from Dharangaon in north Maharashtra, explained that they couldn't operate their mills at full capacity as farmers did not bring enough cotton to the market this year. He hoped that any increase in cotton production resulting from the increase in MSP would augment the supply of raw materials for the cotton-based industry.

However, spinning mills focused on exports from southern India cautioned that a hike in MSP without a corresponding increase in cotton productivity could undermine India's competitiveness in international markets. Ravi Sam, chairman of the Southern India Mills' Association, emphasized the need to improve cotton productivity through better technology and superior seeds. He stated that the increase in MSP alone was not the solution to increase cotton production in India.

While the increased MSP surpasses current market prices, experts from CRISIL Market Intelligence and Analytics have noted that mandi prices are currently 14-15% higher than the MSP. This disparity may discourage farmers from selling at MSP, as observed in the past two years.

However, if mandi prices experience a decline, this higher MSP will benefit farmers' income in key cotton-producing states such as Maharashtra, Telangana, and Gujarat, as there is an anticipation of higher cotton production in the upcoming marketing year 2023-24.