Demonetisation hits cotton exports as growers remain wary

Arrivals have dropped as farmers face liquidity crisis

Despite cotton exports having advantage of rupee depreciation against Dollar, cotton exports have not revived as farmers are not supplying their produce due to demonetisation. 

As farmers are facing a liquidity crisis and traders and mandis are not functioning in many places due to the same reason, arrivals have reduced and cotton prices in Mumbai have gone up by three per cent post the announcement of withdrawal of high value currency notes. However, during the period, the rupee has depreciated by 2.5 per cent and international benchmark prices of cotton have gone up by four per cent and there is a scope for improving exports. As of now that opportunity seems to have been lost following the demonetisation scheme's implementation.

Export of cotton from India during October and November was around 2 lakh bales, as against 4.5 lakh bales, a year ago. The cotton year in the country starts in October and exports also start from this month. Exports should have picked up in this month due to price advantage. In October, local prices were high and hence export was not viable.

According to Prerana Desai, vice-president (research), Edelweiss Agri Services and Credit, said, "Exports to Pakistan and China, which are some of the major importers from India, have been impacted." China has been reducing cotton buying since last two years due to excess stock there and Pakistan was one of the major importers of Indian cotton but that is not the case now due to geopolitical issues.

Last year, Pakistan had imported around 21 lakh bales and this year it is expected to be only around 5-7 lakh bales, according to Desai's estimates, and this too would be through third party sources — importing through other countries.

According to Washington-based International Cotton Advisory Committee's report on world cotton scenario: "World cotton imports are forecast to increase by four per cent to 7.5 million tonnes in 2016/17. Bangladesh is projected to increase its volume of imports by 10 per cent to 1.2 million tonnes, while imports by Vietnam are expected to rise by 15 per cent to 1.1 million tonnes. Exports from the United States are expected to rise by 26 per cent to 2.5 million tonnes, as the abundant crop this season will provide a large exportable surplus. India on the other hand is likely to see its exports fall by 34 per cent to 825,000 tonnes as stocks are replenished after declining by 21 per cent to just under 2 million tonnes by the end of 2015/16." The Cotton Advisory Board has estimated the exports, in tonnage terms, at 8.50 lakh tonnes.

Bangladesh can be a potential country to compensate Pakistan's loss, if the pricing is good. The neighbouring country's requirement is around 70-74 lakh bales every year and it is one of the top three importers in the World. But, an exporter from south India said, "Bangladesh will never buy and front load since they are close to India. Exports there usually are gradual throughout the year."

Desai said that availability is relatively lower as compared to last year and as of now farmers are not supplying due to demonetisation's cascading impact.

It may be noted, according to the Cotton Advisory Board, India's cotton export is projected at 5 million bales in the cotton year 16-17.

All this would result in a drop of around 15 per cent in exports. Edelwiss' estimate is that this year the export would be around 58-59 lakh bales, as against around 69 lakh bales last year.