Prices take a hit, govt mops up cotton worth R1,177 crore to bail out farmers

Written by Banikinkar Pattanayak | New Delhi | Updated: Dec 6 2012, 08:48am hrs
The Centre has stacked up cotton stocks worth Rs 1,177 crore as it stepped up purchases from farmers in what could be the biggest procurement drive in four years. The Centre stepped in to prevent distress sales after prices went below the benchmark levels in many regions despite lower supplies.

State-run Cotton Corporation of India (CCI) the government's biggest procurement arm has bought 5,43,400 bales as of Tuesday at the state-fixed minimum support prices (MSPs) since October 1, compared with a paltry 7,696 bales during the entire 2011-12, a senior government official said.

One bale equals 170 kilograms. Government agencies usually buy cotton at the minimum support prices (MSP) to ensure farmers get the minimum fair returns in case the rates fall below the benchmark level, and sell the stocks later at market prices. Losses on account of the procurement operations are reimbursed by the government.

Strong Chinese demand had driven up domestic prices to record levels in 2011-12 with cotton exports reaching an all-time-high of 12.9 million bales, or roughly 2.19 million tonnes, last year. However, as cotton inventories from China to Australia are bulging with the biggest-ever glut, a year after record prices encouraged farmers to expand output, the demand for Indian supplies has dwindled significantly.

Global stocks in the beginning of the year that started August 1 reached an all-time-high of 15.16 million tonnes, which are expected to swell further to 17.47 million tonnes by the end of 2012-13 as harvests exceeded demand for a third straight year, according to the latest estimate of the US Department Of Agriculture (USDA).

However, imports will likely drop to 7.97 million tonnes from 9.75 million tonnes a year before, mainly because top user China may scale down purchases by more than a half to 2.39 million tonnes, USDA said.

US cotton futures were ruling almost flat at 73.07 cents per lb on Wednesday nearly 67% below the record level of $2.197 an lb in March last year and compared with around 79 cents for a similar Indian variety despite a recent fall in domestic prices. Prices in many regions, especially in Andhra Pradesh, were ruling below the MSPs by up to R105, or 3%, a quintal as of Monday, showed a comprehensive database for 297 procurement centres across the country.

The CCI is now procuring around 50,000 bales a day out of the total arrivals of 1,81,000 bales, although prices in many parts are trailing the MSPs despite lower supplies.

Cotton arrivals in the market tumbled 17% to 4.15 million bales as of Monday from a year earlier, showed the official data.

While textile industry executives feel farmers are holding some stocks due to dwindling returns, some trade executives say poor export as well as domestic demand are to be blamed for declining prices.

The CCI had recently drawn a preliminary roadmap to buy as much as nine million bales from farmers at the MSPs, entailing a cost of R16,470 crore, and also projected losses of R2,430 crore on such purchases. Farm co-operative Nafed, too, had expressed willingness to procure three million bales, worth approximately R5,500 crore.

The country's cotton output is forecast at 33.4 million bales in 2012-13, while consumption by mills is pegged at 25 million bales, according to the state-backed Cotton Advisory Board.