Vidarbha cotton price analysis

What is it about?

This paper examines whether prices are transmitted quickly and symmetrically to cotton farmers in Vidarbha, India. More precisely, when price decreases are passed to farmers more quickly and completely than price increases, farmers disproportionately suffer the losses of lower prices relative to gains of higher prices. We find that on average, a farmer selling 50 quintals of raw cotton would earn an additional 2,300 rupees (approximately $35) if domestic prices increased by 250 rupees per quintal. However, if prices dropped by the same amount, the farmer would lose 3,464 rupees (about $55).

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Why is it important?

In the Vidarbha region of India, 3.4 million people spend most of their lives farming cotton and living in poverty. In recent years, Vidarbha has become infamous internationally for its farmer suicides, particularly among cotton farmers. Our findings show that the loss in revenue for a typical farmer from a decrease in domestic price is larger than the gains from an increase in domestic price of the same magnitude. These empirical results, combined with insights from fieldwork in Vidarbha, suggest that the price transmission process likely disadvantage Vidarbha cotton farmers. This should cause concern among policymakers, especially in the context of the ongoing distress among cotton farmers in Vidarbha.