Centre likely to up ante on cotton procurement

May purchase greater amounts from farmers to check distress sales despite impending storage crisis

The government is considering more steps to facilitate greater purchases of cotton from farmers to prevent any distress sales, and won't slow down procurement despite a looming storage crisis, sources said on Wednesday.

Excess cotton stocks from Andhra Pradesh, where a storage crisis is fast approaching, will be kept in other states, especially Tamil Nadu, where the facility is available, sources told FE. Officials from the Cotton Corporation Of India (CCI) the government's biggest fibre procurement agency will soon meet bankers to enhance its credit limit for procurement to R8,000 crore so that purchases from farmers don't get affected, sources added. Currently, CCI's borrowings stand at R1,600 crore, with outstanding payment liabilities of R1,100 crore.

The CCI has projected cost of the procurement operation at R5,400 crore for January, on top of purchases worth R2,700 crore until December 31. CCI has also projected losses of R1,647 crore on its procurement operation during the entire marketing year through September 2013. Government agencies usually buy cotton at the minimum support price (MSP) and sell the stock later at market rates. Losses on account of procurement operations are reimbursed by the government.

A crisis is approaching as far as cotton storage goes, with the government having procured nearly 1.3 million bales in the third-largest producing state of Andhra Pradesh since the start of the marketing year in October 1, vis-a-vis its storage facility of around 1.7 million bales. One bale equals 170 kg. Moreover, CCI is procuring 40,000-50,000 bales a day in the state and expects to purchase a record five million bales in Andhra Pradesh out of the state's projected crop size of 7.2 million bales for 2012-13, to prevent distress sales.

Prices in Andhra Pradesh are ruling below the MSP by around 3.5%, partly because production in the state is expected to rise while output for the country as a whole is forecast to drop 5% in 2012-13. Although prices in Gujarat and Maharashtra the top two producers are somewhat holding up as of now, a slump in export demand has raised fears of massive procurement operations, and a consequent storage crunch, unless cash-starved textile mills' ability to stock up improves significantly.

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