India will be forced to make large-scale government cotton purchases from farmers for a second straight year, following a cut in imports by top buyer China that has depressed prices, industry officials said. India spent 160 billion Indian rupees ($2.5 billion) to buy 8.7 million bales of cotton at a government-set minimum support price (MSP) in the marketing year that ended on September 30, up from just 400,000 bales in the previous year.
"During the peak supply season, prices will drop below the MSP (minimum support price) level since demand is negligible from China," said Dhiren Sheth, president of the Cotton Association of India (CAI). Government buying, aimed at supporting farmers, will prevent the dumping of cotton in overseas markets by the world's biggest producer at a time when global prices are near six-year lows.
China has in recent years taken more than half of India's cotton exports, propping up prices despite record output, but last year began cutting import quotas to stimulate demand for domestic cotton after it halted a state stockpiling programme. China's imports fell 42 percent in the first nine months of the year to 1.16 million tonnes. Indian farmers have begun the cotton harvest, but prices are already running below the MSP in some southern spot markets, forcing the state-run Cotton Corporation of India (CCI) to start buying at the support price of 4,100 Indian rupees ($63.15) per 100 kg.
"So far we have opened 50 procurement centres. We could open 300 centres across the country like last year," said B.K. Mishra Chairman and Managing Director of the CCI. "We haven't fixed any procurement target for the current year, but we will buy as much as farmers want to sell."
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