G. Chandrashekhar

Mumbai, Feb. 27

Growers of extra-long staple (ELS) cotton, a superior variety, are an unhappy lot because of falling prices. Despite a shortage in the market and strong world prices, domestic prices have been on a downturn last two months.

They are now worried that the Finance Minister, Mr P. Chidambaram, may withdraw the existing 10 per cent customs duty on cotton imports, which would further ruin their price prospect.

Price decline

In two months since December, spot rates for ELS have declined by almost 25 per cent, according to some players. This is notwithstanding lower production in main States such as Karnataka, where the output declined from one lakh bales last year (including 25,000 bales of 34-35 mm) to about 40,000 bales this season (including 5,000 bales of 34-35 mm).

For instance, spot rate for DCH-32 (34-35 mm) has declined from Rs 45,000 a candy in December to Rs 35,000 this month, players in the market pointed out. The price decline is artificial. There are complaints that mills areresisting or postponing purchases, hoping for a moredrop in the market.

Under pressure

The Centre is already under pressure to abolish import duty on cotton. Should that happen in the Budget, the market is sure to get further depressed and create a great disincentive for ELS growers in the country, argue some players.

To be sure, there is a shortage of ELS cotton in the world market having failed on shortage of pesticides. World prices of ELS are nearing record levels (125 cents a pound). If the import is for production of export goods, mills can, of course, avail themselves of the duty-exemption scheme.

(This article was published in the Business Line print edition dated February 28, 2006)
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