The Hindu Business Line : Low global cotton prices may affect domestic growers

DESPITE record world consumption of cotton projected for 2004-05, international cotton prices are expected to considerably weaken in the wake of a sharp increase in global production and rising inventory.

In the emerging scenario, Indian farmers are sure to suffer loss of income because of depressed prices. Pressure of a big domestic crop and pressure of low priced imports are likely to be the bane of Indian cotton growers this season, a situation completely unlike last year when high prices accompanied high production.

World cotton output is expected to reach 23.5 million tonnes in 2004-05, 14 per cent or 2.9 mt more than in 2003-04, while world cotton mill use is expected to increase by 600,000 tonnes or 2.8 per cent to a record 21.9 mt, according to the Washington-based International Cotton Advisory Committee (ICAC).

With production exceeding consumption, world ending-stocks would climb from a 9-year low in 2003-04 to 9.3 ml.t by July 2005, ICAC forecast. China's import requirements are set to decline by at least 3,50,000 tonnes from the record 1.9 mt of last season.

As a result, the average Cotlook A-Index is forecast to drop from 68 cents a pound in 2003-04 to 53 cents in 2004-05.

ICAC believes improved global economic performance will have a positive impact on the world textile industry even as lower prices would stimulate cotton consumption. . IMF recently projected world GDP growth at 5 per cent for 2004 and 4.3 per cent for 2005, up from 3.9 per cent in 2003.

India's cotton output for 2004-05 has been estimated by the Cotton Advisory Board at 212 lakh bales, up from 177 lakh bales of the previous year. There is a certain skepticism about the estimate because of the extra-ordinary level of increase and the negative impact of long dry spell in July l.

Nonetheless, projection of a large crop is seen depressing domestic prices.

There would be additional downward pressure from low priced imports as overseas suppliers are sure to aggressively market the surplus crop and Indian importers are perceived as willing partners in the trade. Consuming mills would be the natural beneficiaries of low prices.