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India to Buy More Cotton from Farmers as China Cuts Imports

India will be forced to buy more of its own cotton as shrinking imports from top buyer, China, depress prices, leading to large-scale governmental purchases for a second straight year.

India spent 160 billion rupees ($2.5 billion) to buy 8.7 million bales of cotton at a government-set minimum support price (MSP) in the marketing year that ended on Sept. 30, up from just 400,000 bales in the previous year.

“During the peak supply season, prices will drop below the MSP (minimum support price) level since demand is negligible from China,” said Dhiren Sheth, president of the Cotton Association of India (CAI) in an interview with Reuters.

Government buying support India’s farmers while preventing dumping of cotton into overseas markets at a time when global prices are near a six-year low.

While imports from other Asian buyers like Vietnam and Bangladesh are forecasted to improve this year, it is unlikely to make up for the hole left by China, which in recent years was buying more than half of India’s cotton, inflating prices amid record output.

China began cutting import quotas last year as part of a push to stimulate demand for domestic cotton. In the first nine months of the year imports on cotton fell 42 percent to 1.16 million tons.

“The Chinese market is huge. No other country can make such large purchases,” said Dharmesh Lakhani, an exporter based in western Gujarat state.