Govt to procure more cotton from farmers as China trims imports

China's imports fell 42% in the first nine months of the year to 1.16 million tonnes -

October 21, 2015 The government will be forced to make large-scale 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 Rs 16,000 crore ($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 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 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.Last year it began cutting import quotas to stimulate demand for domestic cotton. China’s imports fell 42 per cent in the first nine months of the year to 1.16 million tonnes.

Farmers have begun the cotton harvest but prices are already running below the MSP in some southern spot markets, forcing the Cotton Corporation of India to start buying at the support price of Rs 4,100 ($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 CCI.

“We haven’t fixed any procurement target, but we will buy as much as farmers want to sell.” CAI’s Sheth said he expected the CCI would have to make aggressive purchases this year as export demand was subdued and carry forward stocks were at record highs at an estimated 7.9 million bales.

Mishra said this year’s procurement was still likely to be lower than last year as production was set to drop 1.5 per cent to 37.7 million bales and consumption by local textile units has been rising.

Demand from other Asian buyers like Vietnam and Bangladesh is also expected to improve this year, although it is unlikely to make up for China's lost buying.

"The Chinese market is huge. No other country can make such large purchases," said Dharmesh Lakhani, an exporter based in Gujarat.

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