Delivery defaults on cotton contracts at all-time high


COIMBATORE: The volatility in cotton prices in the early part of the year has led to an unprecedented increase in delivery defaults by both buyers and sellers. “It was a year of defaults… The volatility in prices resulted in huge defaults,” a senior official at South India Cotton Association (SICA) said.

Cotton prices, which soared to a historic high of Rs 63,000 a candy (1 candy = 356kg) in February-April , crashed to around Rs 30,000 in just a few weeks in tandem with global commodity prices, pushing the trade and industry into a tailspin.

When the prices suddenly nosedived, many buyers didn’t honour contracted orders, officials said. The defaults on the private trade side is estimated to be around 5-6 lakh bales (a bale is 170kg), SICA officials said. “These unavoidable situations have created the necessity to work for a common contract for Indian cotton,” the outgoing president of SICA, C Soundara Raj, said at its annual general meeting here on Sunday.

“We are working on formulating a standard contract for cotton as most disputes are common,” said K N Viswanathan, vice-president, SICA. The contract would cover both domestic and international trade in Indian cotton and would be formulated after discussions with major stakeholders and regional associations.

While in a majority of default cases negotiations are being held, any arbitration would be guided by the Indian Council of Arbitration and the relevant Acts, said A Ramani, secretary, SICA.

The good points being followed in China, the world’s largest consumer and producer of cotton, could also be included in the contracts, he said. Emphasizing that most defaults were not wilful ones and happened due to extraordinary circumstances, SICA officials said that the situation has brought the focus back on having a neutral contract for cotton imports.

“What happened in Indian cotton can happen to imported cotton as well,” an official said. Though SICA had drafted a neutral contract for cotton imports, this was not pushed seriously as imports started losing relevance due to successive years of high domestic crop.