Indian Government Policy and Producer Profitability In Gujarat and Maharashtra: Implications for U.S. Cotton Exports

India is estimated to be the second largest cotton producer in the world behind China in 20010/11 with an expected crop of 26 million bales.   Indian cotton consumption is forecast at 20.5 million bales in 2010/11. United States.  India has been a major exporter of cotton. For two consecutive years India was the second largest exporter of cotton behind the U.S.  India’s cotton exports during 2008/09 faltered as the high minimum support price (MSP) made Indian cottonuncompetitive in the international markets. Currently the Indian cotton industry has been subject to government restrictions on exports.  In April 2010, the Indian government announced the suspension of cotton export registrations and requested that cotton exports already registered, but not yet shipped, be revalidated, with a monthly cap on revalidations to be determined. Will the government of India continue to restrict exports, will government support for producer inputs and development of infrastructure continue to enhance production and the accumulation exportable surplus and improve marketing efficiencies?  Will India return to challenge competitors like the U.S. in major markets like China?

 In this paper we develop a representative farm level simulation model of cotton production in Gujarat and Maharashtra, the two largest cotton producing states in India.  The models were developed using data derived from farmer panel interviews in India during the summer of 2010. Combined with information gained from interviews with ginners and brokers and developed from secondary sources we use the models to determine the impact on farm level profitability of changes in key policy variables like the minimum support price on a representative farm in each of the two states. Estimates suggest more market oriented policies by the GOI may lead to a decline in farm level profitability and decrease the attractiveness of cotton as a cash crop for many Indian producers.