Manmohan Singh, India’s prime minister, urgently requested a group of senior cabinet members to review a ban on the export of cotton after the country’s agriculture minister said that the curbs on the fibre would hurt farmers. The outcome of the review will be made public on Friday, a statement from the prime minister’s office said.
One senior official within the prime minister office said that cabinet members were likely to lift the ban after the country’s farm minister said that the curbs on the fibre would hurt farmers.
“There is a realistic, high, chance that the ban [on cotton exports] will be lifted,” the official told the Financial Times.
The U-turn is, however, not certain as New Delhi balances its relationship with Beijing and the interests of its farmers with the concerns of its powerful textile industry.
The abrupt policy changes are adding further volatility to the cotton market after two years of sharp swings in prices. Cotton soared to an all-time high of more than $2 a pound last year amid a shortage in part created by an export ban by India, only to tumble afterwards to less than $1 after cotton mills defaulted on contracts. Cotton traders including Cargill, Noble Group and Glencore suffered big losses as a result.
Cotton prices have spiked this year after India banned exports for the second time in two years, continuing its volatile run.
India, the world’s second-largest producer of cotton, instituted the ban with immediate effect on March 5, in a move aimed at ensuring sufficient supply of cotton for domestic textile companies, which have been under pressure as prices have risen.
China, India’s biggest cotton customer, has reacted with a statement from the China Cotton Association, which says it has sent a letter to India’s Ministry of Commerce and Industry to express its “solemn protest.”
The association described India’s cotton export as a “double loss” that harms Chinese cotton consumers as well as Indian cotton farmers. The ban “causes Chinese companies to suffer unjust losses and disrupts the global cotton market, artificially distorting cotton prices and creating big risks and losses for textile companies and cotton traders,” according to the statement.
However, China, while protesting India’s cotton ban, also implements commodity export controls through taxation and quota systems. Earlier this year China lost a World Trade Organisation case that challenged its export controls for raw materials like bauxite and zinc.
India’s move came after China had aggressively bought bales over the past year for a government reserve as a way to support domestic farm prices and buffer against price volatility. By late January, China had bought as many as 5m bales of foreign cotton for the reserve, which along with its domestic purchases made up 15 per cent of global cotton consumption in the current crop year, the US Department of Agriculture estimated.
Earlier this week, Sharad Pawar, agriculture minister, wrote a letter to the prime minister the day after the ban demanding to free the export of the fibre, as he complained that due to higher production this year farmers were already suffering from lower prices than they had expected and needed to export to recover their domestic losses.
However, India’s commerce ministry, which enforced the ban, said domestic textile companies have been complaining too that they are finding it hard to compete with rivals in Bangladesh and Pakistan because of rising cotton prices in India. The trade regulator’s move is expected to push down cotton prices in the country.
India banned exports after sales surged to almost 9.5m bales of 170kg each, more than the surplus of 8.4m bales estimated by the government, according to Bloomberg data.
India noted what it described as “a tendency of hoarding in bonded warehouses abroad” as export registrations jumped to 12m bales, well above its estimated exportable surplus of 8.4m bales.
Cotton for May delivery was up 0.9 per cent to 90.90 cents a pound on New York’s ICE Futures US exchange. Futures peaked earlier this week at 94 cents.