Cotton Exports: Ban From The Blue

Sometimes government actions are so bereft of reason that they often seem imbecilic. The director general of foreign trade banned cotton exports today, leaving cotton farmers flummoxed and the textile industry pleasantly surprised. The DGFT did not offer any reason for the prohibition.

No one is able to explain the sudden move by the DGFT as cotton prices have been quite moderate in the past few months. In fact, prices fell in February; the best cotton, known as Shankar-6 selling nearly 6 per cent lower than at the beginning of the month. It is now trading a little over Rs 34000 a candy (1 candy = 355 kg), about Rs 18,000 less than its level a year ago. The last time the government had banned cotton exports was in 2010 when international and domestic prices had hit records.

However, there were no signs of a spike in cotton prices this year. The output was expected to be at record levels and international prices were also moderating. One industry report said that New York cotton futures were caught between bearish and bullish cross currents. Expectation of a record global production surplus for the third straight season which could result in high end of season stocks is dampening prices.

In the scenario there does not appear to be any reason why exports, which would have helped India’s cotton farmers get better prices, should be banned.

A large number of cotton farmers, especially in the Vidarbha region of Maharashtra and in Andhra Pradesh, are impoverished, debt-ridden and suicidal. The largest number of debt-related farmer suicides in India is reported from these two regions. Buoyant prices in the past two years had been a great relief to them.

The DGFT said that even exports against registration certificates already issued will also not be allowed, potentially paving the ground for a glut and even lower prices. Media reports suggest about 12 million bales of 170 kg each had already been registered for exports. That means many contracts, sale as well as shipping, will have to be broken.

“We are flabbergasted with the Government notification banning export of cotton,’’ said Ajay Jakhar, chairman of Bharat Krishak Samaj.  ``It is anti-farmer and unwarranted.’’

He said it was even more surprising as cotton consumers’ body, the Confederation of Indian Textile Industry had also written to the government requesting it to keep off the market.

Given that even the textile industry was not really pressing for a ban, what could it be that pushed the DGFT? There were rumours that the ban could have been prompted by traders exporting much more than they had reported. Only the DGFT knows.

The thoughts and opinions shared here are of the author.