 "Farmers harvest cotton in a field in Nana Viramgam village in Gujarat")
Demonetisation has not only impacted the arrival of agricultural-commodities in the market, but the export orders in commodities such as cotton, groundnut and soya meal have also taken a toll. With exporters facing difficulties to source products from the markets, non-fulfilment of orders in November has led to order book cancellations and fall in forward contracts.
Groundnut and cotton exporters have stopped forward contracts for January as they are averse to taking risk under the current circumstances.
During October-November, around 700,000 bales of cotton have been exported against an order book of two million bales for the said period. Groundnut exporters, too, say they have prior commitments for November and December for 135,000 tonnes but are not in a position to fulfil the same due to lower arrivals. Cotton exporters have booked orders of about two million bales (one bale is 170 kg) for November, December and January. According to exporters, in this condition, exporters might fulfil only one million bales order by end-December; the remaining orders might be delayed or cancelled.
According to industry sources, if the cash problem persists, exports of rice and maize might also get affected in the coming days.
“The October-December period is crucial for groundnut exports because during these months, we have maximum orders. It’s harvesting time and prices in domestic market remain lower as the supplies are steady. That way, we can offer competitive prices to the buyers. But, now because of demonetisation, arrival at the mandis in groundnut-producing states have declined. Thus, we’re unable to fulfil our commitments,” said Sanjay Shah, vice-chairman of Indian Oilseeds and Produce Export Promotion Council. Currently, against an estimated daily arrival of about 350,000 bags (of 55 kg each), the actual daily arrival is 170,000-185,000 bags. According to groundnut exporters, November-December is an advantageous time for Indian exporters as competition is limited. January onwards, Argentina and Africa will enter in the market, which increases competition. Shah said: “Going by the current situation, exporters are not getting into forward contracts for January as they don’t want to take risk. Several deals have already been delayed and some may cancel if the situation will not revive shortly.”
Agriculture experts also believe that delay or cancellation might hurt the image of the country and demand might shift to competition. “Supply is important to fulfil the export commitments. In present condition, farmers are not selling as they want cash and buyers have no cash on hand. As on date, cotton, groundnut and soya meal exports have been affected but if the situation will not change soon, then basmati rice, maize and pulses exporters might also face trouble,” said G Chandrashekhar, economic advisor of Indian Merchant Chamber.
Chirag Pan, CEO of Jaydeep Cotton Fibres, said: “The cotton sector always deals in cash with farmers. Currently, arrival should be 200,000 bales a day. Against it, daily arrival is only 100,000 bales at the peak time. Export is uncertain now so we are not taking new orders as we are not sure to complete committed orders.”
Adding to it, Pan said India exports 70 per cent of cotton during October and March every year. The industry expects six million bales of cotton exports in the current cotton year (October-September), but in this scenario, exports might not be over 4.5 million bales.
Liquidity crunch
- With exporters facing difficulties to source products from the markets, non-fulfilment of orders in November has led to fall in forward contracts
- Cotton exporters have booked orders of 2 bn bales but only 50% shipment is possible
- If the cash problem persists, exports of rice and maize might also get affected in the coming days
