Cotton prices in India soar as demand rises & stock depletes

Strong demand from the cotton market and depleting stocks in addition to 10% import duty levied on cotton have collectively caused cotton prices in India to soar. Cotton prices witnessed a hike of ₹3,800 per candy in a span of 15 days in July. The steep increase in prices has destabilised the industry and made Indian exporters uncompetitive.

Cotton prices have been on the rise since January 2021 and skyrocketed last month. The Cotton Corporation of India (CCI) increased the cotton price from ₹51,000 to ₹54,800 per candy of 355 kg since the beginning of July. Gujarat-based Shankar-6 cotton went from ₹43,300 in January 2021 to ₹57,000 in July, according to Fibre2Fashion’s market analysis tool TexPro.

The high demand has caused cotton stock with the CCI to deplete to around 9 lakh bales (which would be its opening stock at the beginning of the next season on October 1), which in turn pushed up the prices. The corporation had close to 115 lakh bales of cotton at the start of the current season in October 2020 and procured 92 lakh bales during the season, the Financial Express reported quoting Pradeep Kumar Agarwal, chairman and managing director of CCI.

Additionally, the US, the largest producer of cotton in the world, slipped down as the state of Texas faced a severe drought last year, thus causing cotton prices in India to firm up since December 2020.

Moreover, the price rise has not translated into an increase in the area in the current season either. Farmers are increasingly shifting from cotton to soybean, with India reporting cotton sowing of 108.93 lakh hectares as of the third week of July, compared to 118.03 lakh hectares during the same time in 2020.

The Southern India Mills’ Association (SIMA) had recently expressed its concerns over the rapidly rising cotton prices in the country.

“Such steep increases are a severe blow for the entire cotton textile value chain. Such a rise will lead to higher prices of apparel and textile goods for domestic consumers as well,” said SIMA chairman Ashwin Chandran. “There is no parity between the current cotton prices and yarn prices. This will in turn force spinning mills to increase yarn prices in the coming period to avoid incurring losses.”

The SIMA chairman had also appealed to the central government to immediately withdraw the 10% import duty on cotton to change the market sentiment and avoid further damage to the cotton textile value chain.

The cotton Association of India (CAI) had also requested the government to withdraw the customs duty imposed on cotton. There is a shortfall of extra-long staple (ELS) and non ELS contamination-free sustainable cotton due to the imposition of import duty, as India hardly produces these types of cotton.

“If the import duty is not removed, domestic prices will go up further and create more hardship to the domestic textile sector viz. spinning, weaving and garment industry,” CAI president Atul S Ganatra had said in a recent letter addressed to finance minister Nirmala Sitharaman.

Thus, the high demand, depleting stocks as well as the import duty levied in the last budget have collectively caused cotton prices to rise since the beginning of this year.