Govt may buy 15% of cotton crop to prop up local prices

THEgovernment may buy 15% of India's cotton crop this season to prop up crashing mandi prices. Cotton prices have dropped below the MSP for the first time in Punjab and Haryana as harvest began arriving. This season's MSP is a 40% jump over last year to factor in higher input costs. But traders are reluctant to pay farmers this price for now because a bearish global market has made both exporters and local textile mills leery. Cotton futures in New York hit a 16-month low last week.
    Cotton Corporation of India, the government's nodal procurement agency, this week began buying in the mandis of Punjab, Haryana and Andhra Pradesh. "Sentiment is down among traders in Punjab. But prices are again above MSP in Haryana because traders there are covering existing contracts,'' officials said.
    Though traders are absent right now, CCI expects that it may need to continue procurement only till December. After that market forces will push up prices above MSP. "Traders and ginners may not want to incur interest and carrying costs for six months by buying in October itself. But they can't sit idle for ever. We are expecting private sector purchases to pick speed from January onwards. That's when the lean season starts,' they added. CCI can potentially buy 150 lakh bales.
    Currently, mandi prices of benchmark Shankar VI variety are significantly below the record levels seen last year. But cotton is still upto 20% more expensive than the lowest price last year. Traders have no option but to wait and see how the international market moves before buying. Indian cotton has little demand overseas because prices in main importer China are still lower than India. However, demand from Indian textile mills may revv up because even at zero duty, imported cotton is more expensive right now than the Indian crop.
    For CCI, the lack of parity between imported cotton and the Indian crop means it will find plenty of customers for its bales. "CCI will price its stocks at par with fob export prices. That will ensure that mills get cotton at competitive rates without forcing CCI to incur a loss. We want to assure mills that there will be ample cotton available within the country. But the supply won't be subsidised,'' officials said.
    CCI exported close to 2 lakh bales in 2007-08. The Rs 1700-cr company was able to ensure a 45% jump in net profits due to savvy trading despite stiff private sector competition.
    The government has been clear from the start that it will not adopt any non-tariff barrier that protects local textile mills at the cost of farmer returns. "Indian farmers are successfully competing with other growers around the world by facing zero import duty. Then why should textile mills find it tough to face global competition? The old situation of very cheap yarn is now over,'' sources here said.
Procurement cost seen at Rs 1,200 cr
NEW DELHI: The textile ministry has asked for sanction of Rs 1,200 crore from finance ministry to procure cotton, anticipating largescale purchases due to a dip in cotton rates below the minimum support prices.The ministry has only Rs 149 crore for market intervention. It has demanded from the finance ministry for sanction of Rs 700 crore for cotton procurement till March 2009 and another Rs 500 core for the remaining six months of the cotton season.