The cotton policies of China, the world's largest consumer, have global consequences. China changed farmer support policies, began restricting cheaper imports through its import quota system, and then started selling from its reserve stocks last year. The resultant drop in Chinese demand impacted global prices and prospects for India, for which China is the largest export market. Chinese imports have shrunk about 70 per cent in the past three years. This apart, the alternative to cotton — synthetics — has also turned cheaper on falling crude oil prices, the USDA reports find.
Going by India Ratings & Research reports, India’s exports to China dropped 26.4 per cent between April and October 2014 and with China not absorbing the increased supply it put a lid on prices. Meanwhile exports to countries like Pakistan and Bangladesh picked up but overall exports are still low. Total exports will drop 23 per cent in the 2014-15 season over the previous one, the Cotton Corporation estimates.
Minimum Support Price (MSP) for cotton have moved marginally by Rs 50 or so adding to the woes of excess supply. Market prices are now ruling below MSP. In the medium term, the situation is likely to remain the same and prices for cotton may not see a sharp climb.
A fall in production has been predicted by the USDA as large producers such as China, the US and Pakistan reducing output. The Indian market is set to remain flat, but will still be the top producing region for the second year running. Much of the increase in demand is estimated to stem from Chinese market, which holds almost half the global stock. China’s cotton policies and import restrictions can keep up pressure on prices. In Indian markets too, the muted export climate and higher stocks can restrict price rises.