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Market Monitor | December 2014

Cotton, yarn export rule eased

With the continuous decline in prices of cotton and yarn, and marked drop in buying of cotton from China, the Union Government is making attempts to bail out the domestic industry and farmers in India. First, the MSP price was fixed to help the farmers. Now, the government has 'dispensed with' the registration requirement for exports of cotton and cotton yarn.

With the scrapping of the mandatory registration for cotton, exporters now need not register with the Director-General of Foreign Trade before making the shipment. The move is expected to speed up shipments, particularly when overseas demand for cotton and yarn has dropped sharply.

Cotton production is estimated at 40 million bales this crop year. And it is set to surpass China as the world's top producer. But a sharp drop in prices is prompting farmers to hold back supply. Domestic consumption is not enough to absorb the rising output, and China, the biggest buyer of Indian cotton, has been scaling down its overseas purchases. State-run Cotton Advisory Board (CAB) estimates India's exports could drop by 24 per cent to 9 million bales in the current year.

According to the U.S. Department of Agriculture (USDA) report, India - the world's second biggest producer of cotton - is likely to export 7.69 million bales of the fibre in 2014-15 marketing year (August-July), down by 35 per cent from last year due to sluggish demand from China. China is the top cotton export market for India, followed by Bangladesh and Pakistan. Before easing export norms, the Centre had asked the Cotton Corporation of India (CCI) to procure cotton from farmers in 11 States as the rates have fallen below the MSP in Andhra Pradesh, Telangana and Maharashtra. The CCI is the government's nodal agency for procuring cotton at MSP, which is now Rs.4,050 a quintal for long staple. The Cotton Corporation of India is gearing up to procure cotton worth Rs 12,000 crore this season as prices in most cotton growing States have fallen below the MSP level announced by the government. CCI is expected to buy 60 lakh bales of cotton across Telangana , Andhra Pradesh, Madhya Pradesh and Maharashtra.

India is likely to harvest a record 40 million bales (37 million bales) of cotton this crop year that began in October 2014. It is expected to surpass China as the world's top producer. Cotton export from India has almost come to a standstill with prices in the domestic market ruling five cents above the global market. China, which imported 50 per cent of the 12 million bales shipped by India last year, is slashing on shipments. With the high minimum support price, cotton consignment from India works out to about 71 cents per pound against the now average global price of about 66 cents per pound.

Owners of cotton ginning factories in Raichur in Karnataka have expressed their concerns over continuously declining power supply. According to the Raichur Factory Owners Association the industrial establishments, especially cotton ginning mills were on the verge of closures owing solely to improper and diminished supply of electric power. Around 50,000 people who are directly or indirectly employed in the industry, are, threatened to have been rendered jobless. According to them, there are over 73 cotton ginning mills in Raichur with each one having an investment between Rs. 1 crore and Rs 10 crore. They have a capacity of processing over 40,000 quintals of cotton a day consuming electric power between 10 and 15 MW. They attributed the dip of cotton price in the open market partially to improper power supply to cotton ginning mills. The installed capacity of the cotton processing mills has fallen by 50 per cent, thanks to the inadequate power supply causing drastic drop in demand as

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