Why are cotton prices so high?

Garment makers and exporters across India have been fretting over the rising prices of cotton and yarn. They have demanded a ban on cotton exports but the proposal has been opposed by yarn manufacturers.

Why are textile manufacturers upset?

Prices of cotton and yarn are at a 11-year high. A candy cotton (356 kg) now costs Rs 1 lakh as against Rs 40,000 in October 2020. Likewise, the price of yarn (1 kg) has shot up to Rs 481 from Rs 244 in the same period. Manufacturers feel they are at the receiving end as the price of each garment is fixed at the time of signing the agreement. Any loss or profit owing to the increase or decrease in the price of raw materials has to be managed by them.

Exporters in Tiruppur, which accounts for 53 per cent of total knitwear exports in India, say the increasing prices have either eaten into their profits or led to losses. Exporters said the consistent rise in raw material prices has made them lose out to their competitors from countries such as Sri Lanka and Bangladesh. While their overseas peers enjoy duty-free access to the European Union and the United States, garments from India attract a 9 per cent entry tax.

What is fuelling the relentless rise in cotton prices?

Low yield of cotton in Madhya Pradesh, Gujarat, Rajasthan, Maharashtra and Karnataka, and the reduction in cultivation areas are the two key reasons. While low yield is attributed to unseasonal rainfall, extended monsoon and attack by pink-ball worms, the reduction in acreage is because of farmers’ disinterest in going for the crop as cotton price did not increase substantially for years together. Also, insiders said nearly 15 to 20 percent of the cotton crop is yet to arrive in the market as farmers are probably waiting to sell them at a better price since they know the crop size is low.

What do textile makers want from the government?

A temporary ban on the export of cotton, calibration of yarn exports and increasing the drawing limit from the current 30 per cent to 50 per cent under the Emergency Credit Line Guarantee Scheme (ECLGS) are the major demands of the textile makers.

While side-stepping the demand for a blanket ban on export of cotton, Union Textiles and Commerce Minister Piyush Goyal asked the spinning and trading community to ensure “hassle free supply of cotton and yarn” to the domestic industry and use only the surplus quantity for exports. He is also believed to have asked stakeholders to resolve the price issue to avoid a “hard intervention” from the government that could have a long-term impact on the cotton value chain. The government has constituted an informal committee headed by Suresh Bhai Kotak, a veteran cotton expert, to devise the methodology to enroll right data on the spread of the acreage of cotton cultivation, data on the yield and availability of cotton on a monthly basis, which could form the basis for tangible improvements in the field.

Why do textile makers want a cotton export ban? Are yarn makers okay with it?

Textile makers believe the prices will come down once the exports are banned as cotton traders and yarn manufacturers will have to sell their products only in the domestic market. Yarn manufacturers contend “no government” will be able to control prices in a “free market”. They also say a ban on export will damage India’s image as a reliable supplier in the global market.

Why didn’t the government’s decision to exempt customs duty on cotton imports work?

The increase in cotton prices abroad and the high costs tied to hiring vessels were the major reasons the move didn’t work. It didn’t help as exporters were not sure whether the shipments would reach them before September 30, 2022 – the cut-off date for the exemption. The government, after the meeting with exporters, promised to extend the benefit to everyone who booked their orders till the said date.

(With inputs from Annapurna Singh in New Delhi, Chiranjeevi Kulkarni in Bengaluru, Mrityunjay Bose in Mumbai, and Sathish Jha in Ahmedabad)