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India Reverses Course, Lifts Cotton Export Restrictions

India Reverses Course, Lifts Cotton Export Restrictions

India eases cotton export restrictions, export embargoes often back fire, offers cotton about 10% below world price, cotton futures fall.

In early March, India announced it would restrict cotton exports. The goals- assure cotton supplies for domestic users and provide them some protection from higher prices.

Monday, India reversed course to completely lift the restrictions. Cotton futures retreated on more readily available supplies coming to the world market.

India Reverses Course, Lifts Cotton Export Restrictions

The initial move was intended to protect domestic cotton users in India. Export embargoes have a fairly well established track record of ending up hurting domestic producers. Indian cotton growers will suffer short term as a result of the policy moves. Cotton is being offered around 90 cents pound in India, around 10% lower than international rates for comparable varieties.

Growers may suffer longer term as well. Such embargoes always cast a pall of uncertainty over the reliability as a supplier of the nation issuing the trade restrictions.

India eased the nearly two-month restriction on cotton export permits, removing all barriers to shipments from the world's second-largest producer and bringing clarity to a situation that had been clouded amid differing positions staked out by the trade and farm ministries.

Decision was made earlier today "A decision has been taken to remove the suspension of cotton export registration," Trade Minister Anand Sharma said after ministers met to discuss the issue Monday.

The move came after the trade ministry in early March banned all cotton exports from India in an effort to vouchsafe local supplies of the fiber, sending international prices sharply higher in the process. The farm ministry intervened on behalf of farmers within a week of the original announcement, with the result being that the ban was dismantled in stages.

The trade ministry initiated the ban due to pressure from domestic textile and apparel producers, who wanted to ensure adequate supplies of the raw material.

Farm Minister Sharad Pawar said at the time that the move would deny farmers better prices available by selling overseas, largely to China. The government earlier this month allowed all registered cargoes that had previously been held up to be cleared for export.

Cotton stocks to build Trade Minister Sharma said the export restrictions have been removed because estimates showed there would be a sizeable surplus of the fiber, and "the ministerial panel will review the export situation in two to three weeks."

India's cotton output in the marketing year ending Sept. 30 is expected to reach a record 34.7 million bales, while domestic consumption is expected to decline by around 6% to 25.2 million 170-kilogram bales, according to state-run Cotton Advisory Board.

"It's a very positive step. This will be very beneficial to farmers," Cotton Association of India President Dhiren Seth said, adding that additional exports will total fewer than 1.5 million bales in 2011-12.

The government on Monday also asked the state-run Cotton Corp. to maintain a buffer stock of 1 million bales between June and August that is to be used to supply local textile mills in the event of a shortfall, according to a statement.

India, the world's second-largest cotton producer, has exported 10.6 million bales of the fiber so far in 2011-12, while a further 900,000 bales is to be shipped in the next few weeks.
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