Organic Cotton in India

Facts, figures and issues

By: H. Lanting, MSc.

ETC Consultants India Pvt Ltd
mans.lanting@planet.nl, www.etc-india.org
 Organic cotton in India:
facts and figures
• India produces presently over 50% of the
certified Organic Cotton in the world.
• About 350,000 farmers were involved in
2007-2008 season (A grade plus in
conversion)
• About 500,000 hectares were cultivated in
the 2007-2008 season (A-grade plus in
conversion)
 Facts and figures
• Thus about 5.5% of total cotton area is
under organic cotton (2007-2008 season,
A grade plus in conversion).
• An average of 1.4 hectares is grown per
farmer
• Yield about 860 Kg raw cotton per hectare
• Total yield was 73,702 MT of lint
 General Issues in organic cotton
sector of India
• Rapid spread of Bt Cotton: from 4% in 2004 to about
70% in 2009 on average. In high production potential
areas percentage Bt Cotton can be as high as 90%.
• Sudden increases of Minimum Support Prices by
Government of India make it difficult for buyers and
farmers
• Emerging shortage of farm labor resulting in higher
prices for labor: costs of harvesting alone can be as high
as 25% of gross income.
• Lack of investment capability and lack of access to credit
 100000 hectares
An
d
M hr a
ad P
h y ra

0
5
10
15
20
25
30
a de 35
Pr sh
ad
e
M Gu sh
ah ja

Source: Barik, 2008

a r ra
a t
Ka s h
rn tra
Ta at
m ak
il N a
a
Pu du

States
Ha njab
Ra rya
ja na
st
h
O an
th
er
s
0
1

0.2
0.4
0.6
0.8

fraction Bt cotton
Bt Cotton Areas in 2007-2008 season

Bt Area
% of Total
Total Area
 A problem in Madhya Pradesh and
Orissa?

Percentage Percentage Estimated

Total area Total area Percentage
under under Bt Grand of Total
Organic Cotton total area under
cotton (Barik organic convention
  (OE 2008) 2008) and Bt al cotton
Madhya
Pradesh 56% 72% 128%  
Orissa 88% 0% 88% 12%
Maharashtra 2% 81% 84% 16%
Andhra Pradesh 0% 91% 92% 8%
Rajasthan 1% 10% 11% 89%
Karnataka 0% 10% 10% 90%
 As most Organic cotton comes
from MP, the problem needs to be
resolved
Organic Percentage
Total Cotton cotton Estimated contribution
Area in 2007/2008 Production of the State
  hectares in hectares   lint in MT to total

Madhya Pradesh 650000 159773 25% 47,993 65%

Orissa 75000 41615 55% 12,500 17%

Maharashtra 3194000 40005 1% 12,017 16%
Andhra Pradesh 1096000 214 0% 64 0%
Rajasthan 368000 3716 1% 1,116 2%
Karnataka 404000 36 0% 11 0%
           
  9506000 245359 3% 73,702  
 Farmers’ Dilemma
• Cotton farmers in India face serious profitability
issues in conventional cotton and therefore look
at alternative methods to enhance profitability :
– Bt cotton
– Organic cotton
– but often also other crops like: maize, soybean and
sunflower.
• They also are heavily indebted to local money
lenders in a high risk environment: too little and
too much rain in the same season.
 Organic farming:
do nothing farming
• Farmers often see organic farming as a kind of
“Do Nothing Farming”, reducing their
investments and risk.
• As a result their investments, especially in
nutrient management but also seed, are often
too low for optimal results.
• Farmers “experiment” with organic production,
thus often parallel and part production takes
place, compounding certification problems
Profiling the Organic Cotton Farmer
• My guess is that the organic cotton farmer, who
presently starts to form the backbone of the
sector, has the following profile:
– Between 45 and 60 years of age without a successor;
– Family farm
– Risk avoiding
– Trying to rely on his/her own resources minimizing
external inputs
– Relatively small compared with other farms in the
area at large or
 Profile continued
– Relatively resource poor (money, capital
assets, irrigation) compared with other
farmers or
– From a relatively low productive area
compared with other areas in the state/district
or
– From tribal area with limited access to
external resources (information, knowledge,
money, inputs, capital assets..) and markets
 Markets difficult and prices not as
good as hoped
• Transition period means loss of expected benefits to
farmers: Markets for IC1 and IC2 are limited, thus
premiums paid to farmers in first two years are often too
low to keep them interested.
• Therefore farmers (and their promoters) often:
– exert pressure on certifiers to get immediate A-status saying
they were already producing organically earlier.
– Want a fair trade certificate to enhance income during transition
period.
– However, parties higher up in the chain are not eager to enter
fair trade markets as it:
• Enhances their general basic costs whilst the volume is small;
• Demands organization of farmers into a potential opponent;
Non Cotton produce: a problem
• To ensure commitment of farmers it is
important to market non-cotton produce at
premium
• For non-cotton produce only limited
organic markets exist (international but
primarily local).
• Most farmers grow wrong crop or wrong
variety for international markets
The organic seed difficult to obtain
and loss of genetic diversity
• Availability of untreated non-GMO seeds is
very limited,
– indents have to be placed almost a year in
advance.
– Mostly only major hybrids will be produced
leading to loss of bio-diversity.
• Varieties, agro-eco-systems and markets:
– in dry environments only short staple cotton
will grow, markets demand medium to long
staple cotton.
 Organic farming enhances bio-
diversity and food security
• Most organic farmers rely on manual
operations and can thus easily deal with
intercropping
• To control pests many farmers intercrop
with a mixture of cowpea, pigeon pea,
green gram, black gram, soybeans and
smaller crops like coriander.
• These crops provide income and food
security
 Many new skills are required
• Farmers who want to become organic
need to acquire new technical and social
skills
• It is estimated that about 600 skill changes
are required
• They need to grow different non-cotton
crops and need to produce biomass
• This requires substantial extension
investment
Can farmers pay for extension?
• There is no government extension agency
specifically dealing with organic farming
• To get a sustainable organic sector farmers
knowledge and skills need to be updated
• Preferably the sector pays for it, making it
immune for policy changes (which would be the
case if financed by Government)
• Farmers cannot easily pay as their total
additional income from premiums is about € 40
(US$ 56).
 Soil fertility management:
a major challenge
– Organic carbon content of the soils is
generally very low: less than 0.5% OC.
Enhancement is required, requires application
of large doses (more than 15 MT/hectare) and
substantial investment.
– Strict rules of organic certification make
Nitrogen Management and required correction
of micro-nutrient deficiencies difficult.
– Maintaining proper Nitrogen levels at yields
beyond 2000 Kg (raw cotton) per hectare is
very difficult under the present restrictions.
 Certification expensive and..
• Insecurity for certifying agencies thus farmers:
suspension of certifiers for short periods by APEDA
happens regularly and has serious consequences for
genuine organic farmers.
• Fines are also regularly given to certification agents:
surely they will incorporate this in their price calculations.
• Costs of certification (internal system and external
inspection) are high and often not borne by buyers.
• Farmers have difficulty accessing government subsidies
(50% subsidy of certification costs is given by some state
governments)
 Final farmers’ lists delay
certification
• Only after sowing and more certain after
germination, it becomes clear that a
farmer is actually going to produce
organically
• If emergence of seeds is poor, farmers
might switch to other crops or might fill
gaps with Bt seed or treated seed due to
unavailability of organic seeds
• Thus inspections often start late….
 Are there enough inspectors?
• There are roughly 350,000 farmers to be
certified for cotton only: assuming 25%
sample to be visited at least once a
season, about 90,000 farmers need to be
visited requiring about 30,000 human days
per annum or 250 inspectors
• one inspector per 1400 organic cotton
farmers is bare minimum.
• (assuming 3 inspections per day inclusive of travel plus reporting
time and 120 working days per cotton season).
 Internal Certification..
• The figure presented in the previous slide
is only valid if a genuine internal control
system (ICS) is operational.
• This ICS is, to the best of my knowledge,
only allowed for small scale organized
farmers. Not for contract farming.
• The problem is: what is contract farming
and what are organized farmers?
 Organic, not Bt, are we sure?
• As many Bt cotton varieties have been
developed for Hybrids that were already in
use, easy visual identification of Bt Cotton
by certifying agencies is impossible.
• Only real ‘desi’ varieties, short staple
varieties and ELS varieties like DCH32 do
not have look-alike GMO counterparts.
• Bt kits are available but expensive and
time consuming thus not often used.
Non-cotton GMO’s posing threat for
organic cotton
• To the best of my knowledge certification
agencies handle buffers between GMO and
organic cotton differently;
• In the near future, with introduction of Bt pigeon
pea, maize and egg plant, certification problems
will increase.
• These crops are cross breeders whilst cotton is
over 90% self pollinating
• Thus buffer distances will have to increase
making it more difficult to for farmers to get
organic certification
 Value chain: general
• There is overcapacity and old equipment at each
and every step in the value chain
– Old equipment means low overheads but also low
output per unit of time and often also less than
desired quality
• Only very few units are vertically integrated and
fully modernized. Most units are specialized.
• Power, labor shortage and wages increased due
to National Rural Employment Scheme are
general problems faced.
• Profitability is a problem at each and every step.
 Lack of liquidity and its
consequence
• Many of the parties operating on organic market
cannot immediately pay farmers as banks
demand contracts with ultimate buyers before
they grant loans.
• Farmers cannot get loans on the basis of value
of their raw cotton but need cash to pay for
subsequent harvests
• This leads to organic farmers selling the cotton
they grew and at times buying other cotton at
later stage
 The relative small volume of
organic cotton is a problem
• Each step in the value chain (of any type of
product and most manufacturers) deals with only
a very small volume (say 5 %) of organic cotton.
• Fair trade cotton, an even smaller percentage, is
increasing the general costs of a company and
thus reduces competitiveness in conventional
markets.
• Many clients, however, expect full organic and
fair trade certified products
 Will there be consolidation in the
organic cotton chain?
• Personal observations suggest that there might
be a number of parties that will downsize their
involvement in the organic market as their
expectations of improved profitability did not
materialize.
• Who will remain in the market? My guess: very
large players (with risk bearing capacity and
liquidity) and small players who can cater for
small buyers in a niche market.
Why does organic cotton market
not grow?
– Prices are too high at all levels (except farm
gate prices).
– Inefficiencies in the chain:
• Cotton is produced in widely dispersed areas
which are at times difficult to access, increasing
transaction costs.
• Volumes processed in each step in the chain are
too small, leading to extra costs
• Quantities ordered by clients are relatively small
and highly specific, leading to high costs
 One dollar becomes eight
• The practice of adding percentages in the
value chain to calculate profit keeps
farmers at losing end: a one dollar
increase at farmers level leads generally
to an eight dollar increase of the retail
price
 Conclusions
• The organic cotton sector in India is relatively
small and its statistics still not reliable.
• The sector is fragmented therefore prone to
inefficiencies increasing its costs
• Most of the organic cotton is rainfall dependent
• The average organic cotton farmer is small,
resource poor with limited access to knowledge,
inputs, credit and markets
 Conclusions 2
• Yields of organic cotton are low mainly due to
low Organic Carbon percentage leading to low
soil fertility and water-holding capacity
• Organic seeds are difficult to obtain, thus a seed
production program, producing medium and long
staple straight varieties, is warranted
• A well coordinated research program for organic
farming should be developed in consultation with
organic production programs (The present well
funded NCOF works a bit in isolation).
 Conclusions 3
• APEDA should develop policies which
protect genuine organic farmers whilst
taking action against erring certifiers
• Certification bodies should declare their
staff-farmers ratio as a proxy of their
genuine capacities to guarantee their
certificates and furnish proof of the same
 Conclusions 4
• Farmers require immediate payment at harvest
time. This is often not possible for buyers. The
rules for providing loans against stock should
change to make it possible for banks to give
loans against raw cotton stocks to farmers.
• Farmers should be organized in groups at village
level to increase efficiencies and reduce costs,
especially if they are expected to pay for
services.
 Conclusions 5
• Many houses are engaged in organic
cotton value addition resulting in each
handling very small quantities (about 5%
of their turn-over)
• Though competition is OK, this is
inefficient.
• It would be better that each house handles
50% organic and 50% conventional (to
spread risks and to reduce costs)
 Conclusions 6
• For this to happen, total volume of organic
cotton on the world market should
increase, which will only happen if prices
for the buyer of the final product are
similar.
• But: also at farmers level income of
organic and conventional cotton should be
similar, still a major challenge (as Bt cotton
is presently by and large more profitable)
A partial solution?
www.cottonmatters.com