High cotton prices affect industry; farmers rich

High cotton prices affect industry; farmers rich

New Delhi: High cotton prices spun out enough problems for India’s $62 billion textiles industry, but weaved gains for growers and traders in 2010.

Amid pulls and pressures from the conflicting interests, a ministers’ group under the guidance of finance minister Pranab Mukherjee kept reviewing the price and crop situation, with excessive winter rains playing spoilsport.

The textiles industry pulled out all stops to lobby with the textiles, commerce and finance ministries seeking a ban on cotton exports.

But agriculture minister Sharad Pawar had a different take -- hardening of cotton prices in the global market is a God-send opportunity for the farmers. Why not allow them to avail of it at least till February, Pawar argued.

Collective ministerial wisdom seems to have prevailed and a middle path was chosen to allow exports up to 5.5 million bales.

Prices shot up in the international market because of the demand-supply imbalance, driven mainly by increasing consumption in China and poor harvests in Pakistan due to floods.

The global trend was reflected in the local kapas mandis as well. The natural fibre, the raw material for 60% of the 35 million people industry, has remained in short supply since April, but prices shot up by 90% in the last five months. A cotton candy (356 kg each) was sold at an all-time high of 45,000 in October in the domestic market, according to industry officials.

The government intervened by way of capping cotton exports at 5.5 million bales and cotton yarn at 720 million kg. But it did not help cool prices.

“The capping has not helped the domestic textiles sector much in the backdrop of soaring international cotton prices. It has encouraged speculation by traders and creation of artificial scarcity," ratings agency Fitch has said.

The industry found everything wrong with the policy of allowing exports and the apparel units even downed shutters in protest on 19 November.

However, it described the developments as good for farmers, many of whom have switched to the genetically modified Bt Cotton variety.

“The year was exceedingly good for farmers, whose production cost had already declined substantially because of the use of Bt Cotton seeds," Confederation of Indian Textiles Industry (CITI) director general D.K. Nair said.

Within the industry, garment-makers and exporters bore the brunt of the hit, while the overall trend was helped by a global revival of demand in 2010 after a troublesome 2009.

Total textiles exports managed to grow by 11.5% to $7.57 billion year-on-year during the April-July period of the 2010-11 fiscal, supported by a pick-up in demand in Western markets, where the bulk of the consignments are shipped.

Exports contribute a little over one-third of the total revenue of the textiles industry. The textiles ministry had fixed a $25 billion target for the 2010-11 period, compared to $22.41 billion in the last fiscal.

Garment exporters, who contribute about half of the total textiles exports, continued to face a demand slump.

Apparel exports declined by an annualised 6% to $5.75 billion between April-July. However, things seem to have been improving since August.

“In the first few months of the current fiscal, the trend was negative mainly due to less number of orders from our traditional markets. Although the rate of decline has reduced now, the demand is yet to pick up," Apparel Export Promotion Council chairman Premal Udani said.

Despite the problem of high raw material costs, total textiles production rose by 10% to about 70,000 million square metres in 2010 compared to the last year.

As per the estimates of the textiles ministry, cotton production in 2010-11 is likely to be 325 lakh bales.

But it remains to be seen whether production can reach this figure in the wake of excess winter rains in the key growing areas of Maharashtra and Gujarat.