Indian cotton prices remain too high for recovery in exports: CAI

 The Dollar Business Bureau Higher production and lower global demand has led to a decline in cotton prices in India, but Indian cotton remains highly priced in the international market, according to the Cotton Association of India (CAI). Speaking at the Annual General Meeting of the Association, Dhiren N. Sheth, President, CAI, said last week, “Although the prices of Indian cotton have fallen substantially, they are still not competitive enough to attract foreign buyers.” Moreover, an uptick in demand and arrival of better quality crops have led to an increase in prices in the last few weeks. This means that cotton exports are unlikely to recover any time soon this year. Meanwhile, global demand is expected to remain low in 2015. According to the International Cotton Advisory Committee (ICAC), world cotton production is expected to remain at around 26.2 million tonnes in 2014-15, despite a 3% expansion in acreage, against a consumption of around 24.4 million tonnes. Global ending stocks this year is forecast to grow to 21.6 million tonnes, which is up around 9% from 19.57 million tonnes recorded in the previous year, with most of the stocks in China and India which has become the world’s largest cotton producer and the second largest exporter. Lower demand in China had turned the cotton market topsy-turvy in 2014, and this year is unlikely to be different. Sheth said that China has a huge carry over stock equal to its cotton consumption of about two years. “China has stopped buying cotton for its reserve and instead decided to pay a direct subsidy to the farmers. China has also decided to implement a formula of 4:1 by allowing mills to import 1 bale against consumption of every 4 bales of local cotton. Due to this, imports by China, which were 4.4 million tons in 2012-13 and 3.1 million tons in 2013-14, are expected to decline to 1.98 million tons in 2014-15,” he added. Reduction in cotton purchases by China has caused a sharp decline in cotton prices, which have declined by around 27% from year ago levels. Prices have declined in India as well, with the price of Gujarat cotton of 29 mm staple length dropping to around Rs.9,308/- per quintal (Rs.33,100/- per candy), down about 16% from year ago levels of around Rs.11,079/- per quintal (Rs.39,400/- per candy). However, current prices in India are still down about 10% from average cotton prices in the international market. This presents a challenge to the government procurement mechanism in India. According to CAI, current prices are touching MSP levels and price support operations are taking place all over the country including Punjab, Haryana and Rajasthan, which is a rare phenomenon. “Our country is likely to witness a massive support price operation and the Cotton Corporation of India (CCI) has a huge responsibility on its shoulders of procuring cotton from the farmers at the minimum support price on a timely basis and ensuring orderly marketing of cotton procured by it by releasing the same in the market regularly,” said Sheth.  

This article was published on January 3, 2015.