The government?s plan to create a cotton reserve this season is expected to ensure ?fair returns? to farmers even if it decides later this month against lifting a ban on fresh export registration, industry and trade sources said on Friday.
The government has directed state-run Cotton Corporation of India (CCI) to procure 2.5 million bales, of 170 kg each, at market price to build the reserve. The move came after textile mills sought the government?s intervention, voicing their inability to buy in bulk due to a severe liquidity crisis in the sector.
Cotton prices in Andhra Pradesh, a key producer, had on occasions fallen below the state-fixed benchmark this season, prompting the state-run Cotton Corporation of India to procure the fibre to avoid any distress sale by farmers. In November last year, farmers in Maharashtra protested massively, seeking a sharp increase in the benchmark prices, or the minimum support prices, of cotton varieties as yield dropped due to rough weather while the cost of production went up by 30%.
Adding to farmers? worries, cotton prices had crashed by around a half from their peak of R75,000 per candy, of 356 kg, hit in the year through September 2011 on an acute global shortage. A bumper domestic production and improving global supplies have dragged down prices. Domestic prices have moved in the range of R33,000 to R36,000 per candy in most part of the last three months in many regions.
?Even if fresh export registration is not permitted, farmers? income won?t be affected due to the mop-up by the CCI. Prices go up when there is demand, be it from exporters, or from mills or the government. So the farmer will continue to get the price he was getting before the ban on export was slapped,? said a senior textile industry executive.
However, many traders aren?t amused by the government?s plan. ?Now, we have to be really aggressive to secure stocks otherwise CCI will step in, as they have the backing of the government to build the reserve now. The small domestic exporter with less financial muscle will feel the heat even if the government lifts the ban on fresh export registration,? said a Mumbai-based exporter.
The commerce ministry banned cotton exports on March 5 to improve domestic supplies, but it had to reverse the decision within a week following strong protests by the agriculture ministry which feared farmers? income would dwindle. However, the commerce ministry suspended the registration of fresh shipment contracts and allowed traders to ship out only the quantities for which the registration was completed before the ban was imposed. Although global prices are way off their record levels, exports are still more remunerative than local sales.
An informal group of ministers, headed by finance minister Pranab Mukherjee, deferred a meeting, scheduled for April 3, to decide whether to permit fresh registration. The GoM is expected to meet later this month. Sources said more than 10 million bales have already been shipped out of the 13 million bales for which registration was completed before the ban was imposed last month.
India, the world?s second-largest cotton grower, expects production to touch 34 million bales, compared with 33.9 million bales a year earlier. However, the country had exported around eight million bales in 2010-11 despite record prices, thanks to shipment curbs for most part of the year.
Apart from depleting supplies following wide-scale purchases by exporters, mills? concerns were aggravated by the Reserve Bank?s rejection of a proposal by the textile ministry for the restructuring of debt in the sector. These apart, manufacturing by mills got stymied by acute electricity shortage in many states, especially Tamil Nadu and Andhra Pradesh, bleeding their balance sheets.
