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Suspension of cotton export contracts - CITI

24
Nov '09
Cotton plays in the textile industry of India. It accounts for more than 60% of our fibre consumption and we are the second largest producer, consumer and exporter of cotton. Cotton is one of our largest crops and textiles are among our largest manufacturing industries. Thus, our cotton and textile sectors complement the strengths of each other and are highly inter-dependent.

During cotton year 2008-09 (October-September), the Government increased Minimum Support Prices for cotton by around 43% compared to the previous year and this led to substantial increase in cotton prices last year.

The same MSPs have continued for the current year. With increase in cotton consumption and apprehensions of a lower crop in the country because of the vagaries of the monsoon, cotton prices have increased substantially during the last few weeks. For Sankar-6 which is the standard Indian cotton, the price is around Rs.25000/- per candy on spot basis at present which is more than 10% above the price that prevailed one month back.

The unhealthy increase in domestic cotton prices has resulted largely from speculation by international cotton traders who have cheap capital available from global sources and therefore have an advantage over Indian mills and even Indian traders. There are reports that nearly 20 lakh bales of cotton has already been bought by traders for exports pushing up domestic cotton prices in the process. Operation of Minimum Support Prices ensures that cotton farmers get remunerative prices for their produce. Increase of cotton prices in the market through speculation basically helps only traders at the cost of both the farmers and the textile industry.

November to March is the most crucial period for our cotton economy since most of the best quality cotton produced in the country comes to the market during this period. By cornering a significant portion of this cotton for export, the traders are depriving the domestic industry the advantage of our cotton and transferring this advantage to our major competing countries like China, Pakistan and Bangladesh which are the major importers of our cotton.

Cotton Advisory Board(CAB) constituted by Government had estimated cotton production during 2009-10 (October – September) at 305 lakh bales. After this estimate was made, there were floods in major cotton producing States such as Maharashtra, Andhra Pradesh and Karnataka and water scarcity in the Northern tates.

Therefore cotton production this year is expected to decline at least to 280 lakh bales which would be 25 lakh bales lower than CAB's estimate and 10 lakh bales lower than last year production of 290 lakh bales. On the other hand, there has been some recovery in the economies of North America and West Europe which are major markets for our textile products and therefore cotton consumption in the country is expected to increase this year. It is essential to maintain a reasonable stock-to-use ratio and to provide for a comfortable ending stock to ensure cotton availability and price stability in the market. Thus, the country is unlikely to have any exportable surplus of cotton this year.


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