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When it comes to commodity exports, timing the market is quite important and that is what India often fails. The latest example is the removal of restrictions on cotton exports on Sunday. In the case of cotton as well..

02 Aug 2011

by Sreekumar Raghavan
When it comes to commodity exports, timing the market is quite important and that is what India often fails. The latest example is the removal of restrictions on cotton exports on Sunday. In the case of cotton as well as wheat and rice there is always dithering on the part of policy makers and often 'better late than never' policy helps to create an image that something has been done, but in the end the farmers and traders end up losing as export is allowed when global markets turn weak.

India's decision to remove quantity restrictions on cotton exports comes at a time when both global and domestic prices have dropped nearly 50 percent since March on declining demand from textile makers.

According to Cotton Association of India, Indian cotton exporters are now offered $1.10 a pound of cotton as against domestic prices of $0.90 a pound.

India mainly exports cotton to top importer China and other Asian countries such as Bangladesh and Vietnam. But India's estimated total supplies of 1.36 million tonnes in 2010/11 could meet only a portion of the global demand of 7.7 million tonnes, Reuters reported.

Cotton prices at ICE touched a record high of $2.27 per pound on March 7, and in India, the most traded Shankar-6 variety touched an all time high of $ 1.75 per pound (61,700 rupees per candy of 356 kg) on March 30. Presently, cotton for December delivery at ICE is quoted at $1.0505 per pound levels.

In the case of cotton, there are conflicting demands from growers and the spinning industry. The spinning industry always underplays the estimates released by Cotton Advisory Board and lobbies for more domestic supplies to meet their demand while cotton growers and traders put pressure on the government to allow for more exports. Ultimately, the crisis facing the Indian commodities sector is lack of clear export policy and non-availability of advanced, reliable forecasts that is acceptable to all.

"Indeed, there is something fundamentally wrong with the export policy for agricultural commodities formulated by the Commerce Ministry. Even before memories of the cotton quota allocation fiasco have receded, has the latest victim of bad policy — non-basmati rice export — become the subject of court litigation. As it happened with cotton, now non-basmati rice export quotas are being openly traded by successful applicants, many of whom may have no intention to actually ship out rice. Transparent enforcement of commodity exports under a limited ceiling is no rocket science. Alternatively, why not put non-basmati rice export under open general licence, with the condition that stiff export duty will be imposed upon the aggregate shipment reaching a specified volume. One would expect the Centre and the Commerce Ministry to demonstrate a lot more practical wisdom, gained through years of experience in regulating commodity exports," according to an editorial in The HinduBusinessline.

India's export and imports of key agri-commodities have a bearing on global markets both in terms of prices and availability. Most often as in the case of rice, export notifications end up in litigation and hence valuable time is lost in the process in gaining from favourable global price movements.

Recently, the Directorate General of Foreign Trade (DGFT) had to halt the process of rice exports following an order by the Delhi high court that is hearing a trader’s petition challenging the process of online applications to get export quotas.

“Operation and implementation of the allocation made in terms of Trade Notice No. 13 of 27.07.2011 (DGFT’s notification giving names of selected exporters) is stayed in view of the order passed by Hon’ble High Court... and will be subject to outcome of the case,” a DGFT notification said.

In the petition, exporter Kannu Aditya (India Ltd) said the company could not get selected as an exporter because technical difficulties made it impossible for it to submit its application online with selection based on the first-come-first-served principle. DGFT had invited exporters to submit bids for rice export quota allocations on 19 July and received the Delhi high court’s notice on Wednesday.

On 11 July, a group of ministers had approved the export of one million tonnes (mt) of rice to reduce huge stockpiles. Exporters lauded the move as the international prices were high and there was demand from the Middle East and South Africa.

Traders face the prospect of being too late for the export market for rice as the current price advantage may be lost. Unlike wheat, rice prices in India are lower than international rates, raising the prospect of big gains for exporters. Thailand has been selling rice for approximately $550 (Rs.24, 310) a tonne in the international market, while the minimum export price set by DGFT was $400. With the next hearing of the case posted for August 10, no rice exports are possible and hence a huge global opportunity is lost.

Similarly, the government is yet to decide on the issue of wheat exports from the country even as an Empowered Group of Ministers chaired by Finance Minister Pranab Mukherjee had earlier exports but the decision was deferred in the wake of depressed prices in the global market

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