The Cotton Corporation of India (CCI), a government organisation for cotton marketing, is likely to incur a loss of Rs 2,500 crore for the current cotton year ending September 2009. This is because of a higher minimum support price (MSP) for cotton announced by the government which. CCI has been mandated to procure till arrivals last.
The corporation is set to procure over 10 million bales (1 bale = 170 kg) this season, which is 10 times higher than the government undertaking procured last season. Moreover, it will be almost four times of the corporation’s highest ever procurement of 2.75 million bales back in 2004-05 and the largest procurement by a government agency globally.
Subhash Grover, managing director, CCI, told Business Standard, “The corporation is likely to incur a loss of Rs 2,500 crore. This will include the difference between the cost price and selling price plus the cost of carrying cotton, which includes interest payment and insurance. On an average, we estimate our loss per bale to be Rs 2,500.”
In August last year, the government increased the MSP of cotton by 40 per cent, which the textiles industry till date is protesting. As a result, the domestic cotton prices are ruling higher than the global prices.
| ADDING UP Cotton balance sheet for 2008-09 | |
| SUPPLY | |
| Opening stock | 43 |
| Crop size | 290 |
| Imports | 7 |
| Total availability | 340 |
| DEMAND | |
| Mill consumption | 195 |
| Small-mill consumption | 20 |
| Non-mill consumption | 15 |
| Total Consumption | 230 |
| EXPORTS | 50 |
| CARRY FORWARD | 60 |
| * All figures in lakh bales (1 bale = 170 kg) | |
In MSP operations, selling price is always low, added Grover. “MSP comes only when there is no demand for cotton by private traders. This means that the cost of procurement is always higher than the price realisation. So there are losses in all varieties of cotton. Since, MSP is highest for the Andhra quality, the loss is the highest. In case of the Rajasthan variety, MSP is lowest for the variety there and ,hence, losses are the lowest,” explained Grover.
The corporation, at present procures around 60,000-70,000 bales every day. Last month, the Cotton Advisory Board revised the cotton output on the downside at 29 million bales against the earlier estimates of 32.2 million bales. So far, 23 million bales have arrived in the market. The balance 6 million bales are expected to arrive by April-end.
“We should be able to procure 8.2 million bales as on date and we expect our procurement will stop somewhere around 10-11 million bales and wont go beyond it,” said Grover.
In a slowdown scenario where textiles mills are facing cash crunch, it is harder for CCI to sell its procured material.
So far, the corporation is able to sell only 3.4 million bales which accounts for around 40 per cent of the procurement. “Sales are slower as mills are facing a financial crunch. They are living hand-to-mouth or at the most keeping a stock of a month or two period. Normally, the sales by this time in the season are 60-70 per cent of the procurement,” added Grover.
Despite this, CCI is hopeful of selling its stock. “Cotton will be sold in phases. The last two months have shown some surge in demand. We have to make sure that by September 30 (the last day of the cotton year) at least 80 per cent of our procurement is sold off,” said Grover.
