Read the case and answer the following question:-

Cotton Board over Estimated Production

The Southern India Mills Association (SIMA) said the Cotton Advisory Board (CAB) has
overestimated the production and underestimated the consumption. According to industry
experts any further export of cotton would surpass the quantity decided by Group of Ministers by
two lakh bales.

J. Thulasidharan, chairman, SIMA said that CAB, at its first meeting held on January 6, 2011
has estimated the cotton production as 32.9 million bales and consumption as 27.5 million bales
(including 2 million bales of non-mill consumption), retained the exportable surplus as 5.5 million
bales and thus reducing the closing stock to 4.45 million bales as against the Group of Ministers
(GoM) promised quantity of 5 million bales.

He said. "CAB has overestimated the production and underestimated the consumption, textile
mills would be forced to curtail their production for want of raw cotton from July onwards
resulting abnormal increase in cotton and yarn price.” CAB has reported, cotton production in
the northern region (Punjab, Haryana and Rajasthan) will be less than 4 million bales, which has
been endorsed by the ginning and trading community. In the past several years, Maharashtra
farmers have been selling sizable kapas in Gujarat to fetch higher income whereas in the
current season, since the farmers are realizing good prices in Maharashtra itself, trading of
kapas to Gujarat has come down drastically This will result in Gujarat crop to less than 10
million bales, he said, Thulasidharan said, in Maharashtra, both production and quality, has
been affected from the fact of large scale arrivals of low micronaire cotton. “This in turn is an
indication of severe crop damage in this state, therefore Maharashtra crop would be only around
8 million bales as against the CAB estimate of 9.2 million bales".

On extra-long staple (ELS) cotton production, he said, erratic weather conditions and
unseasonal rains have seriously affected the crop in Karnataka and Madhya Pradesh.

Total DCH production may not cross even 125,000 bales, out of which a sizable quantity of
arrivals is in the hands of exporters due to recent export clearance and grant of additional quota.
With abnormally high ELS cotton prices (280 to 285 cents for PIMA and GIZA 88), Indian
spinning sector will have serious setbacks in fine and superfine counts, said Thulasidharan.

He further said the hoarding of ELS cotton by the exporters has increased the DCH 32 cotton
price from Rs. 53,000 per candy to Rs. 70,000 in a span of 10 days (spot prices), an increase of
24 per cent.

Thulasidharan estimated cotton production for the season 2010-11 will be only around 30.9
million bales. As far as cotton consumption is concerned, he stated that the Textile
Commissioner Office has already estimated at 27.5 million bales for the current cotton season.
“”Non-submission of data to the Textile Commissioner's office is a handicap in arriving at the
consumption figure. If the consumption of non-reporting mills and also the capacity being added
in the spinning sector, the requirement including non-mill consumption would exceed 28.5
million bales."

"Viewing the production and consumption data, any further export of cotton would seriously
affect the entire textile value chain. Even with the current cotton position, mills will face shortage
of cotton from July onwards thus resulting in abnormal increase in yarn prices, ultimately
affecting the common man.”

The Association has sought the ministry of textiles to take up the matter suitably with the
commerce and agriculture ministries and restrict the cotton export at 5.5 million bales and
pointed out that the permitted quantity of export of cotton has already exceeded the quantity
decided by the Group of Ministers by 200,000 bales.

Question
Do you think that the estimates of the Cotton Board are logical? Is it easy for the Board to
estimate production and therefore estimate the total revenue and the marginal revenue?