The agriculture ministry has strongly opposed any move to offload cotton stocks held by state-run agencies now, as sought by textile mills, excerbating a row that has witnessed key stakeholders holding conflicting views.
The ministry believes that such a step may potentially drag down prices below the state-fixed benchmark rates and hurt farmers just as global demand for cotton returns, a senior government official told FE. Since state-run procurement agencies face infrastructral bottlenecks and don’t have adequate network, driving prices down by selling official stocks could be counter-productive, he added.
Commerce and textiles minister Anand Sharma and Prime Minister’s Economic Advisory Council chairman C Rangarajan have taken stock of the situation, said another government official.
State-run Cotton Corporation of India (CCI) has stacked up nearly 2.2 million bales so far in the marketing year through September to prevent distress sales by farmers as prices in third-largest producer Andhra Pradesh dropped below the benchmark prices. Government agencies usually buy cotton at minimum support prices and sell the stocks later at market rates. The losses on account of the procurement operations are reimbursed by the government.
Some government officials have said the Centre’s obligation is to safeguard the interest of farmers, and not that of the consuming industries, especially when heavy losses are involved. They fear that the government has to incur losses of hundreds of crores if stocks are offloaded now, taking into consideration costs on interest payment against bank loans, staff, insurance and storage.
Last month, the Confederation of Indian Textile Industry (CITI) demanded that the CCI offload stocks from its reserves to curb a jump in prices, stoked “partly by hoarding of cotton by traders, and partly by non-release of procured cotton by the CCI and other procurement agencies”. A week later, the traders’ body ? the Cotton Association of India ? shot back saying the price rise in cotton is triggered by an increase in yarn prices and ?the (textile) mills have been making good profits?. CAI president Dhiren Sheth said the CCI should offload cotton only to the highest bidder and also at a convinient time so that losses to the exchequer on procurement operations can be significantly cut.
The row deepened when apparel manufacturers and exporters voiced concern against what they called lack of parity in the price rise in cotton and yarn, and sought a ban on yarn exports, barring a few varieties. Aparrel Export Promotion Council chairman A Sakthivel alleged that textile mills have raised cotton yarn prices by 25% in just five weeks through April 1 to R250 a kg (for 40s count), jeopardising garment export prospects. By contrast, cotton prices in Gujarat (ICS 105, 29mm variety) have gone up by nearly 10% in the five weeks through April 1 to R39,200 per candy of 356 kg, according to the CAI data. Yarn exports hit a record 900 million kg in the fiscal year through March 31, sakthivel said.
In a recent letter to Sharma, Clothing Manufacturers Association of India president Rahul Mehta said cotton yarn (40s count) prices have risen by nearly 12% between October 1, 2011 (when the last season started) and March 1, 2013 while cotton prices during the period even dropped marginally by roughly 1%, indicating that prices of yarn moved at a much faster pace than those of its basic raw material.
However, textile industry executives say, like any other commodity, prices of yarn depends on the demand-and-supply situation and shouldn’t be linked to cotton prices. Spinners say the government should consider their demand to official offload stocks, with preference to mills, as unlike traders, they do value-addition and employ millions and, therefore, need support. They also say that they suffered heavy losses in the two years through 2011-12. So this time around it’s unfair to expect them not to rake in some “legitimate profits” by cashing in on genuine overseas demand to stay afloat. They also argue that if the CCI continues to hold stocks, the cost of cotton will only rise, considering storage costs.