Due to the dip in domestic demand and surplus production, cotton traders want the export ban lifted

The government, on Monday, announced that it won’t allow additional cotton exports during the current marketing year, after reviewing the current domestic consumption pattern. However, traders are disappointed with the announcement, saying that it will hurt the interest of the cotton growers as well as the ginners.

According to All Gujarat Cotton Ginners Association (AGCGA), the government estimate the production so far is 24 million bales (one bale is 170 kg). Considering the expected output, the total production will be somewhere around 34 million bales. The consumption is pegged at 26 million bales. However, there is very little demand from the spinning mills. Most of them have reduced their inventories and running with only 7-15 days of cotton reserves. Besides, most of the spinning mills are based in south India. Due to the issue of electricity cuts there, most of them operate at about 50% of the production capacity.

“So there will be dip in the domestic demand. We project the demand to be around 23 million bales. So we can easily export more cotton. Most of the mills will come under pressure, as with export ban there is no competition for them. So the ginners have to give whatever price the mills demand,” said an official at AGCGA.

On Tuesday, the Group of Ministers (GoM) headed by the finance minister Pranab Mukherjee, objected fresh cotton exports. “Until further order, there won’t be fresh registration,” said commerce, industry and textiles minister Anand Sharma after the meeting. It also decided that about 2-2.5 million bales would be allowed to be exported by already registered exporters only after revalidation and scrutiny.
 
On 5th March, the commerce ministry had announced a complete ban on cotton export after reviewing the shortfall in domestic supplies. However, the ban was partially lifted on 12th March after agriculture minister, Sharad Pawar, objected. Farmers from the cotton producing states of Maharashtra and Gujarat had also launched an agitation against the complete cotton export.

Meanwhile, the agriculture ministry projected domestic production at 34.08 million bales, 4% higher compared to last year. Hence more exports could be allowed.

In the current cotton year, India has exported 9.4 million bales. The cotton season runs from October-September.

Last week, the government directed Cotton Corporation of India (CCI) to purchase around 15,000 bales of cotton from Gujarat and maintain a reserve of one million bales per month. CCI has also been directed to buy cotton at Rs4,400 per quintal.

However, AGCGA feels that CCI doesn’t have the capacity to buy. This will force farmers to sell their produce to ginners at lower price.

Cotton traders are demanding exports to be allowed. Dhiren Sheth, president, Cotton Association of India, told Moneylife, “We are disappointed with the announcement. Exports should be allowed. If the domestic mills want they can buy and build their stock. Irrespective of the various estimations, cotton export will be in the interest of everybody including the growers.  Prices will certainly see a downfall after the announcement.”

Traders also expect a fall in the cotton prices. “The price in the international market is Rs38,000 per candy. One candy is 356 kg of cotton. While in India the prices are Rs34,000 per candy after the export ban. When the exports were allowed, prices were in the range of Rs36,000 per candy. There was a clear loss for the traders as well the farmers. Considering the output, export should be allowed,” said Piyush Vasoya, Rajkot-based cotton exporter.

Meanwhile, the recently released report by the US Department of Agriculture (USDA), suggested that in India’s production is likely to fall by two million bales to 32.2 million in 2012-13. This is because the farmers are likely to switch over other crops, giving better remunerative on the back of an unclear cotton export policy.