The Aftereffects of the Indian Cotton Export Ban: Part 2
Ginning is one of the most significant processes in the textile chain. It defines the quality characteristics of the processed cotton like contamination, neps, fibre uniformity, moisture and sea worthy packaging.
October 10, 2012
Author’s note: With the announcement of cotton export ban on March 5, 2012, India was considered a capricious partner in the global cotton market. "The decision to ban exports took into account the trend of domestic consumption and depletion of domestic availability," the government said in a statement.
The topic of India’s cotton export ban was among the most-discussed issues in 2012 among the cotton fraternity. Everyone started analyzing the news as “China’s Loss” or “United States’ gain.” Post-ban, the world has only heard about the plight of International traders. But the suffering has been uniform, including within India.
We have made an attempt to highlight the views of all the major segments of Indian textile trade: the cotton farmer (producer), the ginner (processor) and the textile mill (consumer).Each view will be featured in a Cotton International newsletter (Oct. 4, 11, and 18).
Interview with Vikram Patel, Director and Chairman, Siddhi Cotton Ginning and Pressing Pvt. Ltd., Gujarat
- Partner in 3 other Ginning factories
- Director, All India Cotton Ginning and Pressing Association
- Director, All Gujarat Cotton Ginning and Pressing Association
Author: Manish Daga, director, Lesha Impex Pvt. Ltd., AKA The Cotton Guru
Ginning is one of the most significant processes in the textile chain. It defines the quality characteristics of the processed cotton like contamination, neps, fibre uniformity, moisture and sea worthy packaging. But life of an Indian ginner is not easy. He buys seed cotton from farmers vide oral agreements and sells to textile mills and exporters vide written contracts.
Here is an interview from a leading ginner of Gujarat known for his moral conduct.
Q1. What was the impact that the export ban had on your business? Please list both negative and positive impact, if any?
Ans: The cotton market in India fell immediately after the Government implemented the ban. Cotton was earlier sold at INR 108 per kilogram to INR 95 per kilogram. Our company holds three ginning factories in Gujarat. At the time of the ban, we had a collective stock of 5000 bales, which amounted to 1.7 million USD. The exporters were not ready to take the delivery of cotton which was in our possession at the time of the ban. This cotton turned out to be a liability for us. In addition, there were rejections in the material that was already delivered. Even the cotton mills deducted allowances for cotton delivered at higher rate. Payments were made in small instalments. We stopped ginning for some time to assess the situation. Restarting ginning after a gap also proved detrimental. The farmers were not ready to sell seed cotton at lower rates. Also, the cotton market went on falling. We then forcefully diverted the business to domestic mills. A lot investment was essential as the credit period was longer. The ban has caused a lot of financial loss and mental stress to the ginners.
Q2. How would things have been different for your business if the ban had never been implemented?
Ans: If the government did not implement the ban, we would have been able to sell our cotton smoothly. There was a reasonable parity in cotton ginning and everyone was satisfied. There would have been more profit and higher turnover. The purchase and sale of cotton would have been regular and unaffected. The committed cotton would have been shipped and all the international contracts been honoured thereby preventing the dispute between the traders.
Q3. Regardless of whether it helped your business or hurt it, what do you think the export ban did to India’s reputation as a reliable trading partner in the international community?
Ans: Such ban implementations always hurt the business in any field, not just cotton. It also spoils the reputation of the country as a trading partner. It creates misunderstanding among the traders and an atmosphere of confusion.
Q4. Do you foresee the government continuing to implement policies that affect free trade in the near future (for example, another export ban next season, removing or instituting import/export tariffs etc?)
Ans: At present, there is no fear of a ban as the market is facing a bearish trend. However, more cotton imports may cause serious losses to the ginners. Also, the export quota was never in favour of small and medium size ginners.
Q5. Any other comments?
Ans: The government must implement policies in advance or else open up the economy as per the world trade. We have invested a lot of money, which we have earned from our hard work. Hence, we always make sure that the quality of the product that we provide is in its purest possible form. India has the potential to become the biggest producer, consumer and exporter of cotton.
Cotton Guru analysis:
Considering market volatility and uncontrollable variables, Indian ginners must not go for speculative sales or forward sales of cotton. They must keep themselves abreast of the world cotton situation.