The Maharashtra State Cooperative Cotton Growers' Marketing Federation, the nodal agency for state sector cotton procurement, saw two records come its way in the season just gone by. One, it broke all the past records by purchasing a phenomenal 212 lakh quintals of cotton from cultivators across the state. And, two – alarmingly – it saw its cotton on fire all over the state. 111 fire incidents gutted cotton worth about Rs 36 crore at several of its godowns and yards. (1 lakh = 100,000)

In two cases, the Federation handed over the probe to Crime Investigation Department (CID). It fired five of its employees "prima facie guilty of negligence" in three separate cases, suspecting their involvement. Dr N P Hirani, the Federation Chairman, confesses: "It's a black scar on our efforts." However, there's some solace for the federation. Since the cotton was insured, the Federation would claim a full insurance. Local leaders and cotton farmers charge the federation with high-handedness though. They wonder how it procured cotton at 216 centres without any regulator or vigilance squad to keep vigil on the process.

Farmers not getting dues

Amidst the charges and counter charges regarding the fires, one key question remains unanswered. For all the cotton purchased, when will the farmers get their dues? Thousands of them are awaiting their payments ahead of sowing season. And though the state government and federation maintain that they have released the entire payment, farmers aren't getting money from the district central cooperative banks.

"This is a crucial period for the farmers," says Kishor Tiwari, President of the Vidarbha Jan Andolan Samiti. "If the government fails to make payments in the next seven days, the cotton growers are set to be doomed. Their debts would soar phenomenally," he fears. The Samiti is a socio-political organisation working in Vidarbha among the farmers and tribals. It is also one of the movements supporting the long standing separate statehood demand for Vidarbha.

The Federation claims it has arranged for Rs 3663.22 crore by borrowing from the Life Insurance Corporation of India (LIC) and other financial institutions. The money was released to the banks in bits – Rs 1238 crore; Rs 1200 crore, Rs 500 crore, and so on. This is only the first installment that the Federation owes the farmers. "This takes care of the minimum guaranteed price for the different varieties of cotton we bought from farmers," informs G H Vairale, General Manager of the Federation. "We are making arrangements for Rs 1,007 crore to pay the second and third installments of bonus and interim payment to the farmers. The installments are due for July and August," he says. (1 crore = 10 million)

Hirani claims the problem of disbursing money to the farmers is with the banks. The banks beg to differ. The process of payment is complex. A farmer gets a cheque from the respective procurement centre of the Federation. He is expected to withdraw his money from the nearest branch of the district central cooperative bank after the government intimation. The government, through the Federation, pays the money to the district treasury, which in turn, disburses the money to the cooperative banks on the basis of a financial statement prepared by the procurement centres. When the treasury releases the money, the banks open their counters for the farmers for disbursement of the cotton payments.

"We clear the cheques as and when we get the money from the government treasuries. Unless we get money from the treasury, how will we pay money to the farmers?" asks a branch manager of a district central cooperative bank in Nagpur. He does not want to be named. "This is a political issue, I will face an action if I speak to you," he pleads.

Federation's financial woes

The bumper production and purchase threw the Federation into tatters. It procured 211.53 lakh quintals of cotton, about 43 lakh bales and 117.66 lakh quintals of seeds (Sarki, in local parlance). And the procurement continued till late April. Consider this: Federation's average procurement always stood at 90-100 lakh quintals. Which means, its cotton procurement more than doubled this time around. So have the bills, which stand at a little over Rs 4,700 crore. Delays in payments to farmers stem from the huge losses that the procurement scheme has run into over the past decade. The Federation has pushed the payment burden onto the Vilasrao Deshmukh-government. Cash-strapped, the state government has found itself grappling with the whopping cotton bills.

Delay in payment is just one problem. This year's losses at the Federation are pegged at around Rs 1,600 crore. But Kishor Tiwari claims the losses would be "somewhere to the tune of Rs 3000 crore". There are no takers for the local cotton, one. And two, the cotton imports are expected to go up, with the import duty just 10%, he says. This means market prices will remain low and the Federation will not be able to sell the cotton profitably, having purchased it at the guaranteed prices. The Federation's total accumulated losses are at Rs 4,000 crore, but add the huge interest liability, and the situation becomes murkier.

Hirani believes unless the government backtracks to the original form of the scheme, the state marketer will continue to garner huge losses. The Chairman is strongly recommending that the government to run the monopoly scheme on the “no-profit-no-loss basis”, i.e. the Federation will procure cotton at prevailing market rate. It will announce a minimum guaranteed price before May 30. Growers will then estimate their returns for the upcoming season. "We will buy the produce at the guaranteed price only. If the government wants, it can pay the bonus (to farmers) independent of this scheme," Marketing Minister Harshwardhan Patil told a media conference in Mumbai on May 10, speaking on behalf of the Federation. The Federation falls under his ministry. The government (state cabinet) is considering the recommendation and is expected to come out with a new policy shortly, Patil declared in the conference.

But there is a catch. Farmers won't still be able to have a say over what the selling price of their yield would be. They would only know in advance the total losses they would bear at the end of the season, should they opt for cotton crop. "This is the beginning of winding up of the scheme and allowing the private buyers to dominate the markets," says the Andolan Samiti's Tiwari. The Federation contends this claim. "By declaring procurement price before sowing season, farmers would be able to decide whether they should go for cotton crop or not. Or, if the private buyers decide to buy the cotton, they would have to pay the guaranteed price at least," argues Hirani.

Hirani also says the Federation is thinking of going for low-interest loans to clear some of its debt burden. Not everyone agrees that low-interest loans will come to the Federation. "The financial institutions are not very keen on bailing out the federation because they know that this is a loss-making organization," explains an ex-official of the federation, pleading anonymity.

Farmers' leader in Wardha Vijay Jawandhia says that unless the Centre hikes the import duty cotton farmers won't stand in the face of international competition.

In the meantime, Chief Minister Vilasrao Deshmukh has been on record to admit the failure of the government to pay the dues in time, this – notwithstanding electoral promises. In fact, this year's payments crisis has its roots in the very electoral promise made in the past elections. The Democratic Front promised a rate of Rs 2700 per quintal to cotton growers before elections. But it turned its back soon after. It reduced payment liabilities by asking the Federation to declare a support price of Rs 2500. Still, the price offer had a catastrophic effect on farmers, says Jawandhia. "The promise of Rs 2700 per quintal, and the previous year's boom at international markets, saw the acreage of cotton rise by 20%." Though the cotton yield dwindled in Vidarbha itself, Marathwada saw a bumper harvest this year, he says.

Also, the huge influx of cotton from the neighbouring states added to the Federation's woes. Hirani estimates that 20% of cotton came from the neighbouring states, which is significant; he had overestimated this number at 70% earlier in the season.

A fresh crisis is brewing

A fresh crisis is now on the cards as the new agriculture season starts in a week's time. At some places, the season may have already begun by now. Says Vilas Bhongade, a social activist: "The seed companies are holding farmers' convention in villages and small towns across the region." Which means, the traps are already in place. With less than a month to go for the monsoon, seed companies through the network of their retailers have launched off their sales, introducing new varieties and fertilizers to farmers, and pressing the cultivators to buy the stocks in advance.

"The farmers are usually coaxed into booking their quota by an advance payment or availing the credit facilities offered by small retailers at varying interest rates," says Kashinath Milmile, an old-time seed and fertilizer dealer in Pandharkawda. Thousands of cotton farmers, he says, would opt for credit this time. Because they have not yet received their dues from the government – the first installment. Which means the cash-starved farmers will be indebted even before sowing starts. The same retailers would buy back the cotton, deducting their loans at the end of the harvest. If the international prices stay stable then, the small time seed-dealers would be richer. If global prices fall, the Federation would see a spurt in its business, with traders running to sell there, at the cost of government's exchequer.

Simply put, the Federation has become a shield for private traders in under the garb of farmers' interests, say farmers' leaders themselves. Timely payment of dues to farmers is therefore crucial.