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In the wake of the sliding price of cotton, major producing countries have begun acting to stem this, through market intervention or subsidies to farmers.
The International Cotton Advisory Committee (ICAC) said on Tuesday that, “given low prices and high production costs, many governments of large producing countries are taking measures to help growers”.
Cotton-2 contracts, traded on global exchanges and a benchmark for global prices, peaked on May 5 this year. Since then, it has fallen almost 30 per cent. In India, the price on the Multi Commodity Exchange fell 23 per cent in the period.
ICAC said, “China recently announced it would provide a cotton subsidy of 2,000 yuan/tonne to growers in nine inland provinces in 2014.”
India has a minimum support price system that did not go into effect in the past few seasons due to high prices. The price has since gone below the minimum support price (MSP) in many places.
Government-run Cotton Corporation of India (CCI) has been actively buying under a market intervention scheme and also stepped up stocks; the government has arranged a line of credit. So far, CCI is understood to have procured 250,000 bales (each 170 kg), mostly from western and southern India. Arrivals have been half the usual number this season, as the crop has been delayed.
In October, the Pakistani government announced a cotton support price of Rs 3,000 a 40 kg. Trading Corporation of Pakistan, which has not purchased cotton since 2005/06, will buy about a million bales of lint this month at the announced price.
The 2014-15 production is forecast at 26.3 million tonnes, of which ICAC says India is expected to produce 6.8 mt, China’s is forecast down seven per cent to 6.5 mt and Pakistan is expected to produce 2.1 mt.
Prerana Desai, vice-president at Edelweiss Integrated Commodity Management, believes heavy procurement is needed. “If CCI wants to buy 10-15 mn bales, the Indian government will need to set aside Rs 30-45,000 crore. Falling crude oil prices will make manmade and synthetic fibres cheap and put more pressure on cotton prices.” So, she concludes, “If farmers reluctance and ongoing MSP operations end up supporting the prices in the beginning of the season, it is sure to bring prices under pressure in the second half of the season and will eventually impact the acreage in the next season.”
Cotton consumption, especially by mills, is projected to go up this season. However, as cotton will be available cheaply in India for some more time, the mills are in no hurry to buy now, said an analyst with a large commodity broking house.
