Mumbai, August 22: Burdened with ever-rising stock of cotton bales, the Maharashtra State Cooperative Cotton Growers' Marketing Federation is keen to resrot to futures, industry sources say.The federation's managing director N Ramarao is said to have visited last week the East India Cotton Association (EICA)'s exchange premises which conducts the trading in cotton futures. Ramarao, who took charge of the federation's activities few months ago, is said to be keen to resort to cotton futures for which he has even approached the EICA officials to appraise the federation of the importance of the cotton futures.
It is for the first time that the state-owned entity dealing in monopoly cotton procurement scheme (the only one in the country) is seriously considering to resort to cotton futures. Till recently, the federation officials had questioned the veracity of cotton futures, and maintained that the futures activity was nothing but speculation and that the state-owned entity safeguarding interests ofthousands of its members (cotton growers in the state) cannot indulge itself in such activities.
The federation's monopoly procurement scheme helped the state's cotton farmers with higher than market prices for cotton, which in turn helped the cotton growers in the other states as well with better prices. That this scheme contributed in outpricing Indian cotton in the international market is a different story.
"The federation will have to seriously think of newer ways to not just stay competitive in procuring cotton, but also lower its rising burden of unsold cotton stocks and therefore, losses," said a federation source on conditions of annonymity.
The federation with around 15-17 per cent of share in the domestic cotton market, can't rule the cotton prices, the source said. The changing economics of the cotton economy in the country in general and the Maharashtra state in particular has forced the federation to look to tbe benefits of futures trading.
The wooes of the federation seems to be risingby the day, more so because of the following reasons:
Under the state monopoly procurement scheme, the federation helps the state cotton farmers by buying cotton at higher than market prices. This has increased the cotton cultivation in the state considerably over the years, but declining offtake and prices in the market has burdened the federation with huge stocks of unsold cotton and losses. Each year the federation's rising losses are pushed on to the state government's kitty. As of mid-March this year, the federation is said to have been burdened with over 20 lakh bales (of 170 kg each) of unsold cotton valued at around Rs 2,800 crore. The federation has since then been forced to resort to auction for the unsold stock, usually at lower than market prices. As of end-July 1999, the federation's unsold stock is said to be around 10.5 lakh bales valued at Rs 1,500 crore. Cotton arrivals in the mandies point to a yet another good cotton season. The federation has began procuringcotton from the Palton region for the next season. However, because of the ensuing polls, the procurement price for next (1999-2000) cotton season will be declared sometime during end-October. Usually, the state announces its annual cotton procurement prices by mid-August. The prices of cotton has been declining, thanks to easy import policy of the government. Against trade estimates of five-to-seven lakh bales of cotton imports, an estimated 10 lakh bales of cotton is said to have been improted till end-July. This has flooded the already overflowing domestic cotton economy. The Cotton Advisory Board, which met last week, is said to have put unsold cotton stock in the country at around 40 lakh bales - more than three months of requirements. This in a situation which is plauged with poor offtake, is a disturbing situation.Recently, the federation was forced to lower the price for its unsold cotton in the auction. Informed sources say the federation had lowered the prices by around Rs 700-800per 170 kg bale. This is in addition to its 1998-99 prices for cotton procurment under its monopoly scheme which were lower by around 12 per cent from those announced for 197-98 prices.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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