NEW DELHI — Cotton users can breathe a little easier — for now.
This story first appeared in the May 1, 2012 issue of WWD. Subscribe Today.
Almost two months after an unexpected ban on cotton exports, the Indian government has once again allowed the country’s growers to export their crop, easing fears the ban might destabilize already volatile global prices.
“After a comprehensive review, it was decided that the suspension of new registrations for cotton exports will be revoked and exports permitted,” the Finance Ministry said Monday.
Commerce Minister Anand Sharma said fresh registrations for export will now be allowed and the situation will be reviewed every two weeks.
India is the world’s second-largest producer of cotton after China and the second-largest exporter after the U.S. Globally, cotton prices have stabilized worldwide compared to a year ago, when they had highs of about $2.12 a pound in March, throwing the entire supply chain, from farmers to retailers, into near states of panic. Yarn spinners and fabric mills were stuck with overpriced inventory they couldn’t sell, and denim firms were trying to figure out how they were going to pass on the increased costs to stores and consumers, and started seeking out alternative fabrics. The financial impact is still being seen as companies report their year-end and quarterly results.
Cotton is selling at 82 cents a pound and crop forecasts are strong. The National Cotton Council sees 2012 world mill use of 113.8 million bales, an increase of 3.5 percent from 2011. Global production is projected to exceed consumption and allow world ending stocks to build to 64.1 million bales.
J. Berrye Worsham, chief executive officer of Cotton Incorporated, said, “If the decision by India to resume normal raw cotton trade remains in effect, it will benefit the entire cotton industry, as artificial trade restrictions have been shown to increase price volatility, will give a boost to global cotton demand.”
The meeting of the group of ministers was chaired by Finance Minister Pranab Mukherjee and included Agriculture Minister Sharad Pawar, Sharma and C Rangarajan, chairman of the prime minister’s economic advisory council.
Revised estimates of cotton have predicted that India will produce more than 3.5 million bales this cotton season, which runs until the end of September.
The ban on Indian cotton exports was made on March 5, at a time when cotton exports touched 9.5 million bales and abruptly stopped the exports, much to the dismay of farmers and exporters. Adding to the consternation was that there were already 2.5 million bales of orders for exports when the ban went into effect. However, the government relented and let the pending orders get clearance one week later.
“This is a positive development,” said Dhiren N. Sheth, president of the Cotton Association of India, speaking about the lifting of the cotton export ban. “It was a travesty of justice. There is no country in the world where a farmer should have to suffer at the cost of industry. The government should keep it free and let everyone compete — the mills, the ginners, the farmers. It is important that they don’t flip-flop and set up procedures that are followed through.”
Farmers have been indignant about the development because they felt the government had sided with the textile industry at their expense. However, one reason the government banned the exports was because “we could not countenance a situation where the country, which is a major cotton producer, is forced to import at much higher prices to meet the domestic demand of the industry,” Sharma explained earlier, describing the move as “judicious” and “considered.”
N.P Hirani, chairman of Maharashtra State Cooperative Cotton Growers Marketing Federation Ltd., said the decision to remove the ban had come “very late,” but “was still very welcome.”
“The cotton-growing farmer has not been properly supported with this policy,” he said, predicting that cotton prices, which had dropped in the last two months, can now be expected to rise once again. “My prediction is that the farmers will benefit completely in this process.”
Cotton exporters in Gujarat and Maharashtra reacted to the announcement with relief.
“I lost my contract with the sudden ban and the country lost a huge amount of foreign currency,” said B.T. Valia, chairman of Cotton Asha, one of the big manufacturers and exporters of cotton from the state of Gujarat.
He said one of the continuing gray areas in the process is the lack of consultation of ginners by the government-owned Cotton Advisory Board, resulting in inaccurate data on forecasts and stocks of cotton.
“The government needs to review the situation very carefully,” he said. “It makes a huge impact on the economy and India loses both faith and money.”
While the government is still keen on building a strategic reserve of cotton, Dhiren Sheth, president of the Cotton Association of India, said, “Creating a strategic reserve in India for ensuring supply of cotton to the domestic textile mills on the lines of a similar reserve in China is wrong since the situations in India and China are not comparable. China is a huge cotton-deficit country, whereas India is a huge surplus cotton economy and the cotton is available to the Indian mills at their doorstep.”
Cotton farmers have already been reeling from this year’s falling cotton prices, which have come down by more than 60 percent from last year, and analysts are predicting a fall in cotton acreage for the coming year.