NEW DELHI — Indian apparel manufacturers feel the country’s ban on raw cotton exports and abundant supplies of cotton at lower prices, combined with the global economic recovery, will help clothing exports rise about 10 percent this year.
This story first appeared in the May 18, 2010 issue of WWD. Subscribe Today.
Elsewhere in the region, however, India’s protectionism is having a decidedly negative effect, especially in Pakistan and Bangladesh, textile-producing countries that are heavily reliant on comparatively cheap Indian cotton. Indian farmers and merchants, meanwhile, are angry they have been shut off from their international buyers.
On April 19, India indefinitely suspended exports of raw cotton shipments in a bid to bring down domestic prices and ensure there was sufficient cotton for manufacturers here. The ban has hit the countries that buy large quantities of cotton from India, which became the world’s second-largest cotton exporter after adopting genetically modified strains of the plant. In the first two months of the year, it replaced the U.S. as the biggest exporter of cotton after China bought in 265,460 tonnes of Indian-grown cotton, a rise of 1,694 percent from a year earlier.
China imports more cotton than any other country — an estimated 9.5 million bales a year.
As a result of the surge in demand, as well as global shortages from poor harvests, Indian cotton prices before the ban had risen more than 25 percent since October.
India’s Apparel Exporters Promotion Council said it expected exports to rise about 10 percent this year after declining 11.4 percent in 2009 to $9.7 billion. Though this decrease was largely due to the global economic downturn and reduced orders in India’s keys markets of Europe and the U.S., textiles manufacturers have lobbied the government to curb imports.
“The ban on cotton exports is crucial,” said Praveen Nayyan, senior vice chairman of the AEPC. “The spinners now have enough to spin. Once we have enough cotton again, the ban can stop.”
The ban has had something of a cooling effect on domestic prices. In the weeks before the ban, cotton in India was selling at around 30,000 rupees, or about $655 at current exchange, per candy (around 370 kilos). In early May, this had fallen to around 27,000 rupees, or about $590. Garments manufacturers said they hope the price would come down further.
The world was already facing a decrease in cotton stocks of some 20 percent for the year because of reduced output in China and higher demand in India and Turkey, among other factors, according to Cotlook, an cotton industry research firm.
Last week, the U.S. Department of Agriculture released figures showing that world output would reach 113.9 million bales, up from 102.9 million bales in the current marketing year. But world consumption, it said, may rise to 119.1 million bales next season from an estimated 115.9 million. The shortage is causing mills in Asia to raise fabric prices, passing higher costs on to manufacturers and brands.
In Pakistan, cotton prices have soared, prompting predictions that cotton mills will be forced to close. The country is the world’s fourth biggest cotton producer, but it relies heavily on Indian imports for a domestic demand of up to 16 million bales a year. This year, it is around three million bales short.
Pakistan has no bar on exports, which means growers sell to the international market, exacerbating the country’s cotton shortage. Clothing manufacturers are calling for an export ban, warning of dire consequences otherwise.
“Some of our mills may even have to shut down for some time,” said Mian Shahzad Ahmed, vice president of the All Pakistan Textile Mill Association and chief executive officer of Indus Dyeing & Mfg. in Karachi. “Between 30 to 40 percent of our mills may be affected in this way and we will all lose money.”
He added the ban would not benefit India in the long term because buyers sourced from other countries including Brazil, West Africa and the U.S. The ban is unlikely to last long because India’s cotton crop tends to outstrip domestic demand.
That view has been echoed by the Indian Cotton Association, which has warned the ban may result in India being sidelined by buyers in the future.
“Cotton acreage, which has seen a rising trend recently, will receive a setback if farmers do not receive a fair price as per international levels as a result of the suspension of exports,” the association said. “[It] will discourage them from planting cotton in the coming season.”
In Bangladesh, too, India’s ban has come as a blow. The country buys 30 percent of its cotton from India. Textiles are Bangladesh’s main export, generating $15.56 billion, which was 80 percent of its annual export income in the year to June 2009.
For cotton growers in the U.S., India’s ban has resulted in a flood of new orders. The USDA said cotton production in the U.S. will rise 37 percent in the next marketing year amid an increase in harvested acreage and “unusually favorable” soil moisture in Texas, the biggest fiber-growing state. Output will rise to 16.7 million bales in the year that begins Aug. 1, from 12.2 million bales in the current season, USDA said.