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Assessing Competitiveness of Indian Cotton Production: A Policy Analysis Matrix Approach

Assessing Competitiveness of Indian Cotton Production: A Policy Analysis Matrix Approach. Samarendu Mohanty Cheng Fang Jagadanand Chaudhary. Objectives. To assess the comparative advantages and protection of Indian cotton production. Using a Policy Analysis Matrix Approach

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Assessing Competitiveness of Indian Cotton Production: A Policy Analysis Matrix Approach

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  1. Assessing Competitiveness of Indian Cotton Production: A Policy Analysis Matrix Approach Samarendu Mohanty Cheng Fang Jagadanand Chaudhary

  2. Objectives • To assess the comparative advantages and protection of Indian cotton production. • Using a Policy Analysis Matrix Approach • Measures input use efficiency in production using a set of profit and loss identities. • Estimates private and social prices for output and inputs and construct various indicators.

  3. Indian Cotton Policy • Minimum Support Price • Production Subsidies • Fertilizer • Power • Irrigation • Export Quota • No Import Tariffs

  4. Subsidy Surge Source: FAS Attáche Report

  5. Indian Share of World Cotton Area and Production

  6. Indian Cotton Net Trade 000 MT

  7. Indian Cotton Producing States (Area and Production Share in 98/99) Haryana 6.2%; 7% Punjab 6%; 7% Rajashthan Madhya Pradesh 5.4%; 3.5% Gujarat 17%; 32% Maharashtra 35%; 21.5% Andhra Pradesh 13.8%; 12.2% Karnataka Tamilnadu

  8. Cotton Yields by State

  9. Cotton Yield

  10. Policy Analysis Matrix(PAM)

  11. PAM Indicators • Protection Coefficients • Nominal Protection Coefficients (NPC) • Output (NPCO) • Input (NPCI) • Effective Protection Coefficients (EPC) • Comparative Advantage Indicators • Domestic Resource Costs (DRC) • Social Cost-Benefit Ratio (SCB) • SCB without Land-Cost (LSB)

  12. Data Requirements Input Prices Output Prices Private Social Private Social

  13. World Reference Prices • US FOB Gulf Price for wheat, corn, sorghum • Canola cash price,Vancouver for rapeseed • Cotton A-index CIF Northern Europe for cotton • Raw sugar price FOB Caribbean • 40 to 50% shelled basis CIF Rotterdam for groundnut

  14. Private and Social Output Prices • Private output prices: Domestic wholesale prices • Social output prices: • Imported Commodities: World reference price+Freight charge+Marketing & transportation costs. • Exported Commodities: World reference price

  15. Private and Social Input Prices • Maharashtra Cotton(Tradable Inputs)

  16. Maharashtra (Non-Tradable Inputs)

  17. Protection Coefficients

  18. Table 3. Comparative Advantage Ranking By Crop State Commodity DRC SCB LSB Punjab Wheat 1 1 1 Cotton 2 2 2 Rice 3 3 3 Haryana Wheat 1 1 1 Rapeseed 2 2 2 Cotton 3 3 3 Rice 4 4 4 Maharashtra Sugarcane 1 1 1 Groundnut 2 2 2 Cotton 3 3 3 Gujarat Groundnut 1 1 1 Cotton 2 2 2 Rapeseed 3 3 3 Wheat 4 4 4 Andhra Pradesh Groundnut 1 1 3 Corn 2 2 4 Sugarcane 3 3 1 Cotton 4 4 2 Rice 5 5 3 Comparative Ranking By Crop

  19. Concluding Remarks • In case of liberalizations, it is likely that Indian cotton area, particularly in Maharashtra, will shift to cash crops such as sugarcane and groundnut. • In the other cotton growing states, area from least efficient crops may not go to cotton. • Indian cotton imports may increase significantly due to liberalizations. • U.S. trade negotiators should push for more liberalizations in Indian cotton sector.

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