The Indian government's purchases of cotton are set to plunge 89 percent in the 2015/16 marketing year as local prices have jumped after crop failures forced neighbouring Pakistan to raise imports from the world's biggest producer of the fibre. The increase in shipments to Pakistan, Bangladesh and Vietnam will help India trim spending on cotton buys by nearly 140 billion Indian rupees ($2 billion) in the year that started on October 1, although the rise in volumes on the international market will cap recent gains in global prices.
"Prices have moved above the MSP (minimum support price) level in most states and farmers are selling to private players," said B.K. Mishra, chairman and managing director of the state-run Cotton Corporation of India (CCI). In a scheme to assist India's cotton farmers, the CCI buys raw cotton fibre from them at 4,100 rupees per 100 kg, while in spot markets prices have risen to 4,300 to 4,800 rupees.
In the year to September 30, India spent 160 billion rupees to buy 8.7 million bales at the MSP as top consumer China started slashing imports. In the current marketing year, the government purchases were again expected to rise to last year's level due to poor demand from China. But a sudden increase in demand from Pakistan and a decision by India's top producing state Gujarat to buy from farmers at levels higher than the MSP boosted prices and reduced the need for state support.
The government will likely spend just 20 billion rupees for procurement of 1 million bales this year, Mishra said. "We have bought 700,000 bales so far, but henceforth we are expecting a slowdown in purchases due to rising prices." Spot prices of ginned cotton in India have risen nearly 5 percent in a month to 33,200 rupees per candy of 356 kg.
"Demand is healthy for Indian cotton from Pakistan and other Asian countries," said Dhiren Sheth, president of the Cotton Association of India, adding that prices could stabilise around the current level. India has so far contracted 3.6 million bales for exports, including nearly 2 million bales to Pakistan, Sheth said. Pakistan's overall cotton imports are seen climbing to at least 4 million bales in the year that started on August 1, from 1.2 million bales in the previous year due to an estimated 25 percent drop in its own production.
India's cotton exports in the 2015/16 season are expected to rise 18 percent to 6.8 million bales. A drop in India's production due to a pest attack and the first back-to-back drought in nearly three decades has also been supporting prices, said Pradeep Jain, a ginner based in Jalgaon in the western state of Maharashtra. A government body has estimated a 4 percent drop in India's production in the current year. Traders are estimating a much steeper drop after floods hit cotton growing in the southern state of Tamil Nadu earlier this month.
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