Higher Estimates Of Crop To Stabilise Cotton Prices: SIMA

Coimbatore, Nov 2: | Updated: Nov 3 2003, 05:30am hrs
Cotton prices are on a high for the past couple of weeks making the spinning mills jittery. However, the mills in Coimbatore do not seem to be alarmed. Vijay Venka-taswamy, chairman, Southern India Mills Association (SIMA) (Coimbatore-based), feels cotton prices are likely to stabilise with new arrivals from this month. He also does not consider export as a threat to the mills and the so-called exports at higher prices, is only speculative hedgings which may not end up in sales. A duty structure that would balance the domestic and import prices is more preferable, Mr Venkatswamy said in an interview with The Financial Express. Excerpts:

Are firm cotton prices a cause for concern for the textile industry in the short-run
Yes, of course, it is a cause of worry, more so, when the textile mills were heaving a sigh of relief owing to improved market sentiments. Though in the short-run, the industry could be affected, the prices would stabilise and move southwards when arrivals pick up in major centres. Already, there are reports indicating a steady increase in arrivals in northern zone, Punjab, Haryana, Rajasthan and Gujarat. The intervening holidays in Gujarat had affected movement of cotton and therefore, spurt in prices. Indications are that once arrivals from Madhya Pradesh, Maharashtra and Andhra Pradesh come in full flow, the price rise will be arrested. In the long run, the prices could only be expected to stabilise as initial estimates indicate a crop size of over 165 lakh bales.

The prolonged rains and late arrivals of cotton is also a reason for the recent spurt in prices.

Will high cotton prices affect profitability of the spinning units during 2003-04 as raw material cost accounts for almost 60 per cent of the mills turnover
Yes, the current high prices are bound to hurt the bottomlines of the spinning mills.

But it must also be noted that the yarn prices have also started moving upwards, though not proportionate to that of cotton.

For example, during 2002-2003, the better performance reported by the spinning mills could be attributed to lower price of the raw material. At this juncture, it appears the spinners are at a disadvantage and farmers are at an advantageous position. We are not against the farmers getting their due share for, only when the farmers are happy, the industry can hope to get adequate cotton. Ironically, it is the middlemen/ traders that take advantage of the market volatility and make huge profits and most often deny the farmers their legitimate share and the industry suffers.

With high international prices, will Indias exports surge
Volatile prices have pushed cotton prices up to a high of around 80 cents an lb from a historic low of 35 cents per lb. Also, cotton is expected to be in short supply globally owing to poor crop in Australia and China. The China factor is very crucial and if they import huge quantity, the world cotton prices could only be expected to remain firm. The current talk of cotton exports from the country is based on high futures prices on the New York Cotton Exchange (NYCE) which is ruling at around 82 Cents per lb. It appears the export contracted is only a hedge and there is a belief that if prices slide on the NYCE, then in all probability exports may not materialise. A clear picture of supplies will emerge only by end-November.

How prudent is to allow cotton exports at a lower price and ask the industry to import the commodity at a higher price
Since both cotton exports and imports are under OGL (open general licence), no ad hoc artificial restrictions could be resorted to. Only the market dynamics would dictate the export or the import trend of any commodity and this is also true in the case of cotton. SIMA has been advocating a mechanism wherein the import duty on cotton should ideally be the price differential between the international and domestic cotton, as this would safeguard not only the interests of the farmers, but also the industry. Though, there are rumours of substantial cotton exports already committed, I am of the view that this could be largely speculative in nature and a campaign by the vested interests. Of course, exports must have been committed for some quantity, but this should not contribute in a big way so as to have a spiraling effect on prices. Since cotton is under OGL, it is quite likely that some cotton may be exported. Ideally, exports should not be resorted to unless and until accurate estimates of the crop is obtained, which in all probability would be available by January and February. In the current scenario, where traders - both domestic and international, have taken speculative position and distorted the market, some checks are necessary so as to protect the interest of the domestic cotton economy in the long run.

Indian Textile Mills Federations (ITMF) survey has indicated that Indian cotton is contaminated. Would this affect cotton exports
Indian cotton is more contaminated compared to some variety of foreign cotton and all out efforts are being made under the Technology Mission on Cotton and also at the unit level to popularise the benefits of having contamination-free cotton. Better storage facilities, packing methods, better ginning and pressing practices and most importantly, improved work culture right from plucking to mill godown have started bearing fruit and in the coming years, the stigma attached with Indian cotton for its contamination should be erased. The international community is well aware of the contamination levels of Indian cotton and this would be factored while determining the price levels.

What efforts are underway to improve Indias abnormally low yields
Both the government and the industry are seized upon the matter and the Technology Mission on Cotton is trying to address this issue on a war footing. Also the contract farming, integrated cotton cultivation are also being aggressively pursued so as to improve the yield. Likewise, Bt cotton has made inroads and this, I am sure, could help in increasing the yield. The efforts of the government is being supplemented by ICMF Cotton Development & Research Association and SIMA Cotton Development & Research Association. The results, so far, have been above expectations and we are sure during the next three to four years, cotton economy could witness a definite all round improved performance.