Continued ban on exports may pull down raw cotton prices by 10%.

Cotton growers and exporters in the country have strongly criticised the Union government for its continued ban on the export of the crop.

The Maharashtra State Cooperative Cotton Growers’ Marketing Federation and the Cotton Association of India have claimed the decision by a Group of Ministers favoured mills and went against growers. They estimate the raw cotton price, currently at Rs 3,800 per quintal, may fall by at least 10 per cent due to the government’s decision.

On the other hand, the International Cotton Advisory Committee say the ban on export of the crop would not have a significant or long-term impact on world market prices, given the current situation. For, the world cotton industry has sufficient supplies to meet current demand, and world stocks of cotton are rising, it notes. Further, market participants had “fully anticipated" continuation of the ban on export.

The commerce ministry argues that allowing fresh export will harm the interests of domestic mills. However, the agriculture ministry is for allowing more export, noting the domestic production at 34.08 million bales was four per cent more than last year’s output.

Last week, as an interim measure, the textiles ministry had directed state-run Cotton Corporation of India (CCI) to build a 2.5-million-bale cotton reserve this season, so as to ensure a smooth supply of the raw material to cash-starved textile mills.

The Maharashtra State Cooperative Cotton Growers’ Marketing Federation says the decision to continue the ban is pro-cotton mills and anti-farmer. “It is unfortunate," federation chairman N P Hirani told Business Standard. “Farmers are once again the losers. Raw cotton prices are expected to fall by at least 10 per cent. The government should allow cotton exports under OGL (open general licence). There must be no flip-flop."

The Cotton Association of India recalls that exports of the produce were always kept under OGL even during the years when India was deficient in cotton. “It is ironical that in the years of surplus availability of cotton, the government is bringing out restrictive policies on exports," says association president Dhiren Sheth says.

He notes neighbouring Pakistan, despite being a net cotton-deficit economy, always follows the practice of maintaining free export of cotton. “That is to ensure optimum return to farmers," he adds. “There is no logic why a cotton-surplus India cannot follow suit. We once again urge the government to open registration of further quantities for export. We also want to make the export of cotton free under OGL — without any quantitative and other restrictions."

The International Cotton Advisory Committee says interventions by the government were disruptive in the previous episodes because they were not anticipated. “But that is not the case in this situation," according to Terry Townsend, the executive director of the committee. The continuation of a ban may not have a long-term impact on world market prices, he adds.

“If I understand the situation correctly, the government will permit the fulfillment of existing contracts for cotton with registration certificates. If this is the case, then there will be an ease on the most disruptive aspect of the export ban: the retroactive application of the ban."

Source : smartinvestor.in