Financial Daily from THE HINDU group of publications
Tuesday, Oct 19, 2004
Agri-Biz & Commodities
Cotton concerns cry for prompt attention
Mumbai , Oct. 18
AN unprecedented 16 per cent expansion in global cotton output forecast for 2004-05 combined with a modest rise of 2.5 per cent in world cotton consumption is set to play havoc in the market, with primary producers, especially in developing countries, likely to bear the brunt of a sharp price decline.
All major producing-countries in the northern hemisphere are in the process of harvesting their crop and in many cases the growth rate is double-digit.
China's output, the world's largest, is set to rise by a massive 32.3 per cent or almost one-third from last year to a record 6.42 million tonnes (mt).
The US, the second largest, will see an 18 per cent growth in output to 4.69 mt, while Pakistan 16 per cent (1.96 mt) and Uzbekistan 17 per cent (1.04 mt) are other major gainers in crop size.
In its latest report, the US Department of Agriculture (USDA) has estimated world cotton production at a new high of 23.9 mt (20.6 mt). On the other hand, consumption is expected to rise to 22.1 mt (21.5 mt) trailing production by 1.8 mt.
The excess production would contribute to further expansion of stock.
The USDA has estimated ending stocks in 2004-05 to rise by as much as 25 per cent to 9.1 mt (7.3 mt).
World cotton prices are going rule rather weak over the next several months, making consumers happy, but not producers. There are incipient signs of an improvement in global economic performance.
It is unclear at this point of time to what extent economic growth and low prices would spur additional consumption of cotton across the world.
Indian crop prospects have also turned out to be significantly better as per reports from representatives of industry and trade.
But there are serious reservations about the veracity of the crop size estimated by the Cotton Advisory Board - 213 lakh bales, an increase of 36 lakh bales from the previous year's 177 lakh bales.
Stories of price crash and distress sale by cotton growers have already begun to circulate. The Cotton Corporation of India has been directed to intervene and begin price support operations. To what extent it will succeed in arresting price decline remains to be seen.
The industry and trade associations concerned with cotton are never tired of justifying liberal cotton imports with low rate of Customs duty on the ground that domestic production is unable to meet user industry demand. This season, for the second year in a row, India has produced a large crop of cotton.
Plentiful availability of indigenous crop at low prices should encourage the user industry to build inventory out of indigenous crop.
There would also be export opportunities for Indian cotton, particularly to neighbouring markets because of freight advantage; but it is unlikely that export volumes would be as much as last year's level of 8-10 lakh bales.
On the other hand, as Indian cotton market is integrating with the global market, the threat to domestic cotton from imported cotton is real.
It must be recognised that low world prices and shrinking import demand would pressure large cotton exporting countries such as the US, which are sure to deploy every trick in the marketing book to gain market share.
The least New Delhi could do at this point of time is to prevent unfair competition from low-priced imports during the next six months, by steeply raising the Customs duty on cotton from 10 per cent so that the interests of growers are not grievously hurt.
The entire industry is agog with reports of illegal planting of Bt Cotton on a large scale, particularly in Punjab and Haryana. Should this be true, it is a major failure on the part of the regulators. This development needs to be investigated. The seed market is not well-regulated and farmers are becoming unwary victims of illegally produced genetically modified seeds by local firms and sale of second-generation seeds.Already there are far too many varieties of cotton grown in this country.
Lack of varietal purity and blending of varieties with different characteristics affect overall cotton quality. And now, you have illegally produced and marketed Bt Cotton seeds in addition to what is legally permitted.
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