Cotton crisis snowballing in to a matter of survival

20 Jun '08

4 min read

Indian Textile Industry is the largest employer in the manufacturing sector of the country. This industry is at present in a critical position due to the unprecedented increase in cotton prices.

The current prices of cotton in the country are over 35 percent higher than the prices that prevailed during the same period of last year, in spite of record cotton production in the country.

Yield of cotton has also improved considerably during this period, enhancing the income of cotton farmers substantially. These improvements have been achieved primarily on the strength of governments policy support by way of Cotton Technology Mission and the industry's proactive actions for educating cotton farmers on modern production technologies and Best Management Practices through extension activities.

However, with increased exports of cotton, the advantage of the improvement in our cotton economy is accruing to our competitors, rather than to our own cotton textile industry, as can be seen from the enclosed statement at Annexure I.

It is pertinent to note that most of the increase in cotton prices this year has occurred after cotton changed hands from the farmers to the traders. Large MNCs operating in the international cotton markets have now become active in our cotton market.

On the strength of finances available to them at LIBOR, the international traders have been cornering cotton and hoarding it in order to increase prices. The present situation in the market is that traders are not interested to sell cotton to our mills because they anticipate continued increase in prices, because of depleting availability.

Past experience shows that a reasonable ending stock of around 60 lakh bales is necessary to ensure that cotton prices remain competitive. The ending stock this year has declined to 43 lakh bales, basically because exports have increased to 85 lakh bales from 58 lakh bales of last year.

Incidentally, 85 lakh bales is the estimate of government's Cotton Advisory Board for this year's exports. Cotton traders have estimated cotton exports of this year at 95 lakh bales and many in the textile industry think that actual exports may exceed 100 lakh bales.

A reasonable stock-to-use ratio is another important factor influencing cotton prices. As per the data of International Cotton Advisory Committee, stock –to-use ratio in most countries is over 40%, as against our 18%.

The advantages of processing our cotton within the country in the various stages of the textile value chain in terms of increasing industrial production and generating employment are obvious. Restricting the large exports is the only way of ensuring that cotton remains available to our ndustry.

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