Recent upturns in the price of cotton yarns from India could squelch exports from that country and take a bite out of its GDP.
Fears of the economic damage caused by higher cotton yarn prices swept through the offices of yarn spinners, apparel exporters, and the Indian government, as they all looked for a solution to the problem.
“We are losing our competitive edge in the fabric market due to the rise in yarn prices,” said M.S. Mathivanan, President of the Confederation of Indian Weaving Industries.
“The power loom units are suffering heavy losses,” he said.
In the wake of India’s costlier cotton yarns, bargain-hunting end users have gone elsewhere for sources, notably, Bangladesh, Cambodia, Pakistan, China, and Indonesia.
More orders will be lost to these countries if costs are not controlled, according to Mr. Mathivanan. Oddly, there is no relation between the price of cotton and cotton yarn.
As of mid-April, 2013, prices for both 20s and 40s cotton yarn count soared some 30 percent.
Although prices went up, Indian farmers have not been reaping the benefit of the increases. The Indian government provides only minimum price support to cotton growers.
Besides these yarn higher prices, shortages of power have also affected yarn makers in the Erode region of India. About half of the region’s yarn makers have stopped operations.
Mr. Mathivanan predicted that more such units will have to shut down if cotton yarn prices continue upward. Future domestic shortages were also forecast. Employment will therefore also be reduced, adding to India’s domestic problems.
Chairman of India’s Apparel Export Promotion Council (APEC), Dr. A. Sakthivel, has been an outspoken advocate of domestic garment and textile makers who have been affected by the sudden rise in cotton yarn prices.
“Due to increase in demand and high cotton yarn prices, not only has it affected the garment sector, but also other sectors are suffering [such as] handloom, power loom, made-ups for domestic as well as export market,” said Dr. A. Sakthivel in a recent presentation to Secretary Textiles of the Indian government’s Ministry of Textiles.
High cotton yarn prices caused similar circumstances about 18 months ago, Dr. Sakthivel pointed out. Many buyers which once purchased Indian yarn, went to other less expensive sources for the product.
Although many of the customers who defected a year-and-a-half ago were lured back to India, the conditions which drove them away in the first place have occurred again.
In his plea to Secretary Textiles for government action to reduce higher cotton yarn prices, Dr. Sakthivel cited the job losses resulting from the increase.
“We have seen the big job losses in India due to [the] drop in export orders one-and-a-half years back because of the abnormal hike in cotton yarn prices,” he said. “Now we request you to kindly take suitable action to bring down the cotton yarn prices.”
Despite Dr. Sakthivel’s urgent argument for a government intervention to control prices, Scretary Textiles said no government action is required and urged cotton yarn producers to voluntarily keep prices low.
But economists know that the market dictates prices, driven by supply-demand factors, and the costs of labor, energy, production, warehousing, marketing and distribution.