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India Raises Minimum Cotton Price

In a bid to dispel the mounting distress of its cotton growers, sparked by a slowdown in exports, India’s government on Wednesday announced it was increasing the minimum support price (MSP) and has authorized the Maharashtra State Cooperative Cotton Growers Marketing Federation (MSCCGMF) to undertake MSP operations as a sub-agent of the state-run Cotton Corporation of India (CCI).

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has raised the MSP (a government support program that guarantees a price level paid to farmers to procure their produce) of medium and long staple cotton by 50 Indian rupees (or 70 cents) per 100 kilograms each for the year 2014-15, a scant increase over such previously fixed prices as 3,750 rupees and 4,050 rupees for certain varieties.

As the world’s largest producer and second-largest seller of cotton, India is estimated to have a cotton surplus of nearly 16 million 347-pound bales this year, while the U.S. Department of Agriculture forecast a fall in exports of 58 percent year-over-year. “This operation is primarily aimed at safeguarding the interest of the farmers and avoiding any distress sale,” declared an official statement from the CCEA.

Earlier in the season, declining exports due to a global surplus and slack demand from China caused cotton prices to slip below MSP levels, obliging the CCI to actively enforce guarantees by purchasing and stockpiling the equivalent of nearly seven million 480-pound bales from domestic producers. Last month, the agency started auctioning its inventory at prices near MSP levels, but these were not low enough to garner the interest of Indian mills and led to multiple media reports citing an “artificial shortage” of the raw material.

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Now, the CCEA has approved additional financial support to subsidize “anticipated losses” in the sale of cotton procured by the CCI during the year. According to Jon Devine, senior economist at Cotton Incorporated, this implies the agency might start selling its cotton stock for less than what it paid farmers for it. He added, “If they lower the auction price, this should be beneficial to the domestic textile industry since it would lower its input costs.”

It could also mean more aggressive marketing abroad to encourage interest and to help free up the country’s limited warehousing capabilities. As reported by The Hindu, the textiles ministry is already in talks with cotton-deficit countries to increase overseas sales. Devine noted, “The problem that the Indian government (CCI) is facing in its auctions is that there has been only sporadic demand. To encourage more offtake, it may have to change some of the parameters involved.”