A sudden shift in Chinese import quota system coupled with a glut in the international market will have an impact on the Indian cotton market. The domestic cotton price, which has already gone below the MSP, will slide further with an expected bumper crop in the current harvesting season. Consequently, the yarn prices, too, is expected to come under pricing pressure.
Currently, the demand for cotton from domestic yarn mills is on the lower side on account of the higher domestic cotton price as compared with international prices, coupled with lack of quality cotton worth spinning as well as existing high inventory with yarn mills, said a study done by Care Ratings.
Further, the demand for cotton in international market is sliding, which can be largely linked to China’s new cotton policy, as China constitutes about 60% of the India’s cotton exports. Cotton export from India is estimated to fall from high of 11 million bales in 2013-14 to 6-7 million bales in 2014-15.
To boost demand for domestic cotton, China, the world’s top consumer of cotton, will slash its import quotas for 2015. China will provide import quotas next year only for the 894,000 tonne that it is required to offer at low duties under commitments with the World Trade Organization (WTO) and no additional quota would be made available as it was made previously. Non-quota imports are subject to a 40% tariff, so the restricted availability of import quotas will dampen Chinese demand for foreign cotton and the same will hurt Indian exports, said the study.
The Chinese government will also end the three-year- long programme to stockpile domestic cotton to support local growers and instead offer subsidies direct to farmers. As the Chinese government offloads its three year reserve stock of cotton, mills will get access to cheaper cotton from the local market and the same will reduce their dependence on imports. So, China is unlikely to be an aggressive buyer this year and its imports are expected to decline significantly.
Over the past few years, India has achieved significant growth in cotton production. India’s cotton production has grown from 14 million bales (of 170 kg) in 2000-01 to 37.5 million bales during 2013-14. The growth in cotton production is driven by increase in area under cotton cultivation as well as growth in yield. The area under cotton cultivation in India has increased from 85.76 lakh hectares in 2000-01 to 115.53 lakh hectares in 2013-14, while yield has grown from 278 kg per hectare to 518 kg per hectare during the same period.
According to the study, during the current year (2014-15), the area under cotton cultivation in India has further increased to reach a record level of 125 lakh hectares. There has been sharp increase in cotton acreage in Gujarat, Maharashtra, Karnataka and Andhra Pradesh.
By R Ravichandran