Explained: why the textile and clothing industries want to ban cotton exports

On Wednesday May 18, Union Textiles Minister Piyush Goyal convened a meeting of cotton traders, millers and garment makers. The subject: Soaring cotton prices, leading to demands from the textile and clothing industries to ban exports of the fiber. It comes days after the government banned wheat shipments on May 13 in response to rising prices due to a heatwave-induced production shortfall. Is there a case for similar restrictions on cotton exports?

How much have cotton prices increased?

They have almost doubled compared to last year. The average or highest modal price of kapas (raw unginned cotton) at the Rajkot APMC (Agricultural Commodities Market Committee) mandi was Rs 12,250 per quintal on Thursday, up from around Rs 6,300 at this time last year. It was also well above the government minimum support price of Rs 6,025 per quintal for long staple cotton varieties.

Prices have rallied since November, when they broke through the 8,000 rupees per quintal mark before crossing the 10,000 rupees mark for the first time ever in many markets in early January. The cotton marketing season runs from October to September, with more than 90% of harvest arrivals already occurring by the end of May.

Why have prices increased so much?

Basically three reasons. The first is the drop in production. In 2020-2021, the total production of cotton lint in India was 353 lakh bales (lb) of 170 kg each. For the current year, the Cotton Association of India (CAI), a Mumbai-based trade body, estimated production at 323.63 lbs. This figure, released on May 14, is lower than its previous estimate of 335.13 lbs (made on April 9). ), 343.13 pounds (February 25), 348.13 pounds (January 18) and 360.13 pounds (October 30).

The second reason is international prices. The price of the Cotlook ‘A’ Index – an average of representative quotations in Far East destination markets – currently stands at 167 cents per pound, down from 92 cents a year ago. India is the world’s second largest cotton producer (after China) and the world’s third largest exporter (after the United States and Brazil). High world prices have made exporting attractive. In addition, they pushed up domestic prices closer to export parity levels, while making imports more expensive.

The third reason is consumption. The state-owned Cotton Corporation of India (CCI) in March projected total domestic consumption for 2021-22 at 345 lbs, down from 334.87 lbs, 269.19 lbs and 311.21 lbs in the three campaign seasons. previous marketing. “Demand has increased dramatically as factories and other users have been operating at sub-optimal levels for the past few years. Even during the pandemic, the demand for sheets and towels had skyrocketed, resulting in increased consumption of cotton and yarn,” said SK Panigrahi, Chief General Manager (Marketing) of CCI.

But pressure on availability from lower production has already led CAI to revise its estimate of domestic consumption down to 320 pounds, from its January 18 estimate of 345 pounds. CCI should soon follow suit.

Why has production dropped so much?

Cotton sown area in India increased from 134.77 lakh hectares (lh) in 2019-20 to 132.85 lh in 2020-21 and 123.5 lh in 2021-22. This is largely due to the diminishing benefits of genetically modified Bt cotton, which nearly tripled the country’s production from 136 pounds to 398 pounds between 2002-03 and 2013-14. Over a period, Bt cotton became increasingly susceptible to attack by pink bollworms and whitefly insect pests, making it riskier for farmers to grow the crop. In addition, the government does not allow testing or commercialization of next-generation transgenic breeding technologies.

This time, the harvest was also affected by off-season rains in November-December, which affected yields as well as the quality of the bolls of the second and third “flushes” (cotton is generally harvested over three or even four pickings, the first in October-November and the following ones every 20-30 days thereafter).

To what extent is the request for an export ban justified?

India’s cotton exports are actually projected at 40 pounds this year, down from 78 pounds in 2020-21. At the same time, imports are expected to be higher, at 15 pounds, compared to 10 pounds last year. In addition, on April 13, the Center reduced import duties on cotton from 11% to zero. Given the drop in duty-free exports and imports – which are currently allowed until September 30, before the next marketing season – there may not be a strong argument for a outright ban on shipments.

Moreover, with domestic prices already reaching international parity levels, exports would naturally slow down. Proponents of an export ban say it would not impact farmers because they have already sold their harvest. However, a ban can also send the wrong signals ahead of the planting season, which kicks off next month with the arrival of the southwest monsoon rains.

Newsletter | Click to get the best explainers of the day delivered to your inbox

Who are the main players in the cotton value chain?

The fiber, the white fiber that spins into thread, constitutes only about 34% of the kapas. The rest is made up of seeds (65%) and moisture. The seed further yields both oil (used for cooking) and de-oiled meal (used as a protein ingredient by livestock feed manufacturers). Kapas rates have strengthened not only due to exports and domestic demand for fiber, but also due to higher vegetable oil prices. Cottonseed oil is, in fact, the third largest vegetable oil produced in India. Its estimated production, at 12.49 lakh tonnes (lt) in 2020-2021, came just after mustard (27.39 lt) and soybeans (13.29 lt), out of a total of 93.18 lt, according to the Solvent Extractors’ Association of India.

Kapas is mainly bought by traders and ginning units that separate the cotton fiber from the seeds. The fiber is sold to spinning mills and the seeds to oil mills for grinding and the production of vegetable oil. From each kilo of fiber, the spinning mills obtain 700 to 800 grams of yarn. The yarn is then woven or knit into fabric and clothing. In 2021-2022, India not only exported raw cotton worth $2.8 billion, but also cotton yarn worth $5.5 billion and cotton fabrics and garments. worth $8.2 billion. Each link in the value chain therefore involves exports.

Michael O. Stutler