On April 30, 2012, The Government of India lifted its March 5, 2012, cotton export and indicated that it will reassess the cotton situation in three weeks.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
GAIN Report Number: IN2064
Post: New Delhi
India Lifts Cotton Export Ban
Agriculture in the Economy
Cotton and Products
Trade Policy Incident Report
Trade Policy Monitoring
On April 30, 2012, The Government of India lifted its March 5, 2012, cotton export and indicated that it will
reassess the cotton situation in three weeks. The move came as a surprise in light of the tight supply situation
that is currently reflected in the Cotton Advisory Board’s balance sheet. Some analysts have indicated that
supplies in India are larger than the balance sheet indicates. The accuracy of the balance sheet will likely be
tested over the next few months as exporters resume shipments. Assuming a relatively tight supply scenario,
FAS Mumbai estimates that additional exports of 1.0 million 170 kg bales will be shipped prior to the end of the
current August/July marketing year.
India Lifts the Cotton Export Ban
The Government of India has lifted its March 5, 2012, cotton ban according to a press release from the Ministry
of Textiles. The press release indicates that the decision was made by the Minister of Agriculture, the Minister
who currently heads both the Commerce and Textile ministries and the Chairman of the Prime Minister’s
Economic Advisory Council, a group also known as the Informal Group of Ministers. The press release indicates
that the ministers will meet again in three weeks to assess the cotton supply situation. The announcement also
directs the publically-run Cotton Corporation of India (CCI) to procure an additional 1.0 million 170 kg bales of
cotton as a buffer stock, which is equivalent to approximately two weeks of consumption by the textile sector.
The ban has undergone several modifications since it was first announced. The Government subsequently
allowed additional exports of 1.9 million 170 kg bales (325,000 mt, 1.5 million 480 lb bales) that had been
registered for export at the time the ban was announced. It also directed CCI to purchase 2.5 million 170 kg
bales of cotton at commercial rates to build a buffer stock, but operations were quickly halted because market
prices were significantly higher than the minimum support prices the Government of India establishes as a price
floor at which CCI would normally intervene in the market with procurement operations.
Supplies Still Extremely Tight According to Local Estimates
The announcement came as a surprise considering the tight 2011/12 (October/September) cotton supply
situation that India’s Cotton Advisory Board (CAB) is currently projecting with ending stocks of 2.5 million 170 kg
bales (the lowest since 2003/04) on September 30 and what is likely a record-low stocks-to-use ratio of 10
percent. The press release indicates that the ministers considered the Ministry of Agriculture’s current
production estimate of 35.2 million 170 kg bales (6.0 mmt, 27.5 million 480 lb bales) bales, but that estimate is
only 500,000 bales higher than the estimate adopted by the CAB and does little to add to estimated exportable
India Cotton Advisory Board Balance Sheet
October/September Marketing Year
Million 170 kg bales
As of April 18, 2012
Beginning Stocks 4.05 3.91
Production 33.9 34.7
Imports 0.5 0.6
Total Supply 38.45 39.21
Mill Consumption 22.07 21.1
Small Mill Consumption 2.47 2.1
Non-Mill Consumption 2.2 2.0
Total Domestic Consumption 26.74 25.2
Exports 7.8 11.5
Total Use 34.54 36.7
Ending Stocks 3.91 2.5
Stocks-to-Use Ratio (percent) 14.6 10
Arrivals improving, but will they continue?
After lagging throughout much of the marketing year, 2011/12 (October/ September) cotton arrivals have
shown some strength of late, averaging nearly 1.0 million 170 kg bales per week for the four weeks from March
25 through April 22, possibly supporting the CAB and Ministry of Agriculture’s production estimates.
Nevertheless, at 28.9 million 170 kg bales, arrivals are still four percent behind the year ago pace with 5.8
million more bales needed to reach the CAB production estimate. As reported previously, the slow pace of
arrivals has been attributed to factors such as farmer holding, lower cotton quality, the late onset of harvest,
weaker demand from the textile sector and farmer disappointment with prices following the record high prices
of 2010/11. The accelerated pace of arrivals over the past few weeks suggests that the notion that “the cotton
is out there” may be accurate, but India’s 2011/12 cotton harvest was finished months ago and arrivals will have
to be stronger than usual to support the current CAB production estimate and even stronger to support a
significant volume of additional exports using current CAB estimates. Current indications point to a slowdown
in daily arrivals, which is not surprising given how long ago the crop was harvested. However, with export
restrictions lifted, the market may get a better sense for how much cotton is currently on farm.
Will reduced consumption lead to larger exportable supplies?
Some have pointed to the possibility of lower consumption by the textile sector as a source of additional
exportable supplies. As reported previously, mills in Tamil Nadu and Andhra Pradesh, which account for 40
percent of cotton consumption, have faced power cuts and have had to reduce operations beyond levels seen
during previous power shortages. However, with the resumption of monsoon winds expected to improve the
supply of wind energy in Tamil Nadu in a few weeks, power supplies are expected to improve. The textile
industry has also faced challenges raising operating capital following widespread losses during 2010/11.
Nevertheless, consumption has been relatively robust and mill balance sheets are generally thought to be
improving, at least in central and northern India. Since the export ban was announced on March 5, ex-gin
cotton prices have dipped while yarn prices have remained steady, suggesting better spinning margins over the
past two months. How prices will be affected by the lifting of the ban remains to be seen, but ex-gin prices are
up nearly two percent in the brief period since the ban was announced and further gains could trim spinning
margins if yarn prices do not increase.
In order to free significant volumes of cotton for export, a million bales for example, before the end of July,
monthly mill consumption of domestic cotton would have to drop by 330,000 170 kg bales per month to the
lowest levels since 2008/09, a prospect that seems unlikely. Similarly, one factor that seems to be hindering
domestic demand that could also affect export demand is quality. Quality concerns stemming from lower than
average micronaire values, particularly in the central and western areas where most export cotton is sourced,
continues to be a concern. In short, while reduced consumption by mills could free some exportable supplies of
cotton, the prospect for volumes in excess of a few hundred thousand bales seems unlikely at this stage given
the already conservative estimates for March to July outlined in the table below.
Monthly Cotton Consumption by the Textile Sector
Million 170 kg Bales
2009/10 2010/11 2011/12
Aug 1.859 2.173 1.807
Sep 1.829 2.143 2.170
Oct 1.812 2.209 1.770
Nov 1.847 2.110 1.816
Dec 1.949 2.257 2.003
Jan 1.954 2.210 2.034
Feb 1.881 2.023 2.012
Mar 2.001 2.176 1.950
Apr 2.053 2.017 1.950
May 2.093 1.864 1.950
Jun 2.071 1.808 1.950
Jul 2.211 1.883 1.950
Total 23.56 24.87 23.36
1. 2011/12 Figures in red (Mar-Jul) reflect FAS
2. Does not include annual loss estimates of
2.2, 2.0 and 2.0 million bales respectively.
Could imports increase?
2011/12 August/July imports are currently estimated at 800,000 170 kg bales, higher than CAB the CAB estimate
and reflect imports of cotton from Pakistan to mills in northern India in addition to the usual imports of long
staple varieties. Under the current CAB balance sheet, it seems that a significant rise in exports over the next
few months would likely lead to an increase in cotton imports by textile mills. However, thus far at least, Indian
cotton prices have been low enough to counter significant import volumes. The relatively weak rupee, which
has depreciated from Rs. 44 per dollar to Rs. 51 per dollar over the past eight months, could also act as an
How much cotton can India export?
Perhaps the first question that arises is how long exporters believe that the current policy of unrestricted
exports will be in place. The press release indicates that the cotton situation will be assessed again in three
weeks. Indian exporters have been known to register large volumes of exports over short periods of time.
However, current penalties for failure to perform on an export registration are high, which may deter some
from the previous practices of making large paper registrations. The government called for the ban on March 5
in part because it was concerned that exporters, who were likely anticipating export restrictions based on the
pace of exports, were reportedly starting to make paper export registrations in an effort to facilitate future
exports in the event restrictions were put in place. In short, it may be too early to tell how exporters will react
in the short term, but it seems likely that some additional exports will take place, particularly from gins that are
located near ports in Gujarat. As reported previously, there are logistical issues within India that make it easier
and cheaper to ship cotton from Gujarat and Maharashtra (India’s two largest cotton producing states) than to
ship cotton to textile mills in southern India. If the current policy remains in place for any length of time, the
next question will be how much more cotton can India export.
It seems that there are two general export scenarios.
A. The Tight Supply Scenario
If one adopts the current supply and demand situation as published by India’s Cotton Advisory Board, export
prospects appear to be quite limited. Following on some of the previous discussion in this report, an estimate
of maximum additional exportable supplies follows:
Production: If the Ministry of Agriculture’s production estimate is accurate, an additional 500,000 170 kg bales
would be available for export on an October/September year.
Consumption: If textile mills scale back their cotton consumption by an average of 200,000 170 kg bales per
month in response to higher cotton prices, lower margins or slack demand for yarn, an additional 1.0 million
bales would be available for export an October/September year.
These calculations would result in approximately the same ending stocks level of 2.5 million 170 kg bales, while
making 1.5 million 170 kg bales available for export on an October/September year. If exports proceed without
a larger crop or reductions in mill consumption, Indian textile mills could turn to imports for cotton supplies.
Given the cost of internal freight in India, cotton imports could be a viable option for mills, particularly southern
mills, depending on prices. However, given government efforts to regulate cotton exports over the past three
years and what seems to be a general policy aversion to importing large volumes of a commodity that is
normally readily available in India, it seems likely that the government would step in to regulate the market in
some way before allowing large export volumes to result in large import volumes.
B. The Ample Supply Scenario
Using a statistical adjustment, USDA Washington analysts recently added 4.5 million 170 kg bales to the Indian
supply. Under this scenario, where weak Indian prices are symptomatic of large internal supplies, India would
seem to have sizeable exportable quantities of cotton available for export before the new crop; the only
significant limiting factors would be pricing and foreign demand. Exportable supplies under this scenario could
be 3.5 million 170 kg bales just from the additional supply that USDA analysts are estimating. Add in a larger
crop (USDA’s production estimate is 34 million 170 kg bales compared to the CAB estimate of 34.7 million and
the Ministry of Agriculture’s estimate of 35.2 million) and exportable supplies could exceed 4.0 million
additional 170 kg bales under this scenario with sufficient demand.
Which Scenario is it?
The lifting of the export ban came as a surprise to many in India given the tight local balance sheet. If the
current export policy remains in place, the next few months will likely shed light on the amount of cotton that is
currently in India. Large export volumes with little or no slow down in textile consumption will support the
notion that there are large volumes of cotton that are currently unaccounted for on Indian balance sheets.
While a limited volume of exports and a rapid rise in prices would suggest that local balance sheets are
representative of the supply situation. However, if exports proceed with alacrity over the next few weeks,
government officials may decide to again manage exports, thus halting the opportunity to test just how much
cotton is in India.
USDA Mumbai analysis is currently based on the tight supply scenario, but not quite as tight as the CAB given
the different marketing years and some historical differences in trade numbers. The estimate of 2011/12
(August/July) cotton exports is provided in the table below. It is not entirely clear where additional exports will
go, but Bangladesh is reportedly a ready buyer and exporters will likely move to conclude as much business as
possible as soon as possible. Significant exports beyond July appear doubtful given the supply situation under
170 kg Metric Tons 480 lb (total)
August 2011 1\ 516,000 87,868
September 2011 1\ 833,076 141,623
October 2011 through April 2012 2\ 11,500,000 1,955,000
Post-ban exports 3\ 1,000,000 170,000
Total 13,849,076 2,354,342 10,814,000
1\ Provisional estimates from the Ministry of Commerce, DGCIS
2\ Exports and approved export registrations according to Ministry of Textile Press Releases
3\ FAS Mumbai estimate
The latest version of the USDA Mumbai supply and demand situation follows:
Thousand 480 lb Bales 2010/11 2011/12 2012/13
(Aug/Jul) (Aug/Jul) (Aug/Jul)
Area (ha) 11,142,000 12,191,000 10,920,000
Beginning Stocks 6,872 7,134 4,238
Production 26,469 27,094 25,228
Imports 187 625 390
Total Supply 32,858 33,853 30,856
Exports 5,255 10,814 4,685
Consumption 21,139 19,801 20,301
Ending Stocks 7,134 4,238 4,870
Disappearance 32,528 34,853 29,856
Stocks-to-Use % 34.0 21 24