Govt purchases are projected to rise in the coming weeks due to a record crop
Barely three months into the season, the government’s cotton procurement has already scaled a six-year peak, as a record harvest and subdued exports have dragged down prices.
According to the latest official data, cotton procurement by Cotton Corporation of India (CCI) hit about 2.50 million bales — the highest since 2008-09 when the state-run agency purchased a record 8.93 million bales in the entire marketing year and compared with just 40,813 bales in the whole of last marketing year through September 2014. Most of the purchases this year have been from Andhra Pradesh and Maharashtra, the leading producers after Gujarat. One bale equals 170 kg.
Last month, textile minister Santosh Kumar Gangwar had asked the CCI to ramp up purchases from farmers at the benchmark prices to prevent distress sales by them, as cotton prices had crashed by around a quarter then from a year before. Although domestic prices have improved a bit since November, they are still 5% lower than the benchmark prices set by the government in many regions, especially in Andhra Pradesh, textile industry executives said.
Procurement is going to rise in the coming weeks as more supplies start flooding the market due to a record crop, official sources said.
The data by the CCI showed that arrivals of cotton has remained almost flat at last year’s level of 10.50 million bales up to December 21 this year. The country produced 39 million bales of cotton last year and is projected to produce a record 40 million bales in 2014-15, according to the estimate by the state-run Cotton Advisory Board.
“Despite the latest bout of fall, domestic cotton prices are still almost 10% higher than the international level, which has adversely affected exports,” said DK Nair, secretary-general of the Confederation Of Indian Textile Industry (CITI).
Two successive years of bumper harvests have contributed to the fall in domestic prices, although elevated costs of production have still kept local prices higher than the global levels.
Global cotton prices, as gauged by the Cotlook index, have started falling consistently after March and have dropped roughly 30% since then to 69 cents per lb now. In contrast, the prices in Gujarat (ICS-105 fine, 29 mm variety) have declined 21% to R33,200 per candy, of 356 kg, as of December 21.
Worsening the problem, demand from China has slowed considerably in 2014-15, as the world’s top consumer has already piled up huge stocks and is reported to be considering trimming inventory.
Farmers in Maharashtra and Andhra Pradesh have intensified their protests since November, seeking an increase in procurement by the govenrment as well as the minimum support price. Some have started the protests in Gujarat as well, with reports suggesting that three farmers have committed suicide so far this year. The Gujarat government has declared R1,100 crore in relief to farmers in paying electricity bills as well as the interests on loans, but farmers have been seeking a higher package.