NEW DELHI (Reuters) - Indian seed companies threatened on Thursday to halt supplies to 8 million cotton farmers in protest against a potential government plan to cut prices by 7.5 percent, the chief of a producers’ body said.

Farmers in India, the world’s No. 1 cotton producer and the second-biggest exporter of the fiber, start planting the crop in the rainy months of June and July. Lower supplies of seeds could delay plantings and hit output, potentially pushing up benchmark prices in New York.

Reuters reported on Wednesday that New Delhi is likely to lower the price of genetically modified (GM) cotton seeds by 7.5 percent to 740 rupees ($11) for 450 grams of seeds to help farmers whose fields have been ravaged by pests.

Seed companies would also stop producing for the next season beginning June 2019, Kalyan Goswami, director general of the National Seed Association of India (NSAI), said in a letter to a senior government official, and reviewed by Reuters.

“If the published information in the media is true by any likelihood, NSAI members would be incapable to supply seeds to the markets this time, and also they will not be in a position to take production this year (for next year’s requirement),” Goswami said.

Cotton seed prices have dropped drastically in the past few years, but fuel, labor, chemical and supply chain costs have risen sharply, squeezing margins of most seed makers, he said.

In fact cotton seed prices should be raised by 150 rupees a packet from the current 800 rupees, Goswami said.

Other than cutting the prices of GM cotton seeds, India is likely to impose another cut to Monsanto Co’s royalties paid by domestic companies for its GM cotton seeds.

The latest reduction risks another row with the U.S. company, the world’s biggest seed maker, which threatened to leave India in 2016 when the government cut its royalties by more than 70 percent.

In 2017/18 India’s cotton output is set to rise by 9.3 percent but still short of the record high predicted by industry analysts because boll worm caused damage in some regions.

New Delhi approved the first GM cotton seed trait in 2003 and an upgraded variety in 2006, helping to transform the country into the world’s top producer of the fiber.