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NEWS ANALYSIS

Cotton balling crisis

Inam Ahmed
The recent ban on cotton export by India has sent a shockwave down the textile industry in Bangladesh, which mostly depends on Indian cotton to run its spinning factories. But more important, this has created the need to rethink a strategy to secure its supply from India, the major
sourcing country for Bangladesh.
At the centre of the recent ban is the role played by China. Over the years, China has emerged as the single largest cotton consumer, accounting for almost 40 percent or 43.5 million bales of the total global consumption of 108.72 million bales in 2011 -12.
rrum rauc a
And India, with an almost similar population of slightly over one billion, consumes 19.5 million bales.
However, the difference between these two countries is that India is a cotton exporter as it has an exportable surplus of around 7-8 million bales.
On the other hand, China buys around 30 percent of the total 38-39 million bales of global exportable cotton.
This situation has led to two implications for the cotton market. First, China as a strategy for securing its supply tends to overstock. And when this textile giant overstocks, it sends a distress signal across the cottonworld.
This is exactly what China did this time also. It went on a buying binge and swooped on the Indian market. India suddenly came up to the realisation that it had exported more than its ability. It then hurried to impose a ban on cotton export. But by that time around 12.5 million bales had been registered
for export, of which 9.5 million bales had already been exported, 85 percent of this to China. There is now evidence that China has stockpiled cotton in its free zone and also in Malaysia.
Under this situation, Bangladesh, trying to be another textile giant, is precariously positioned, as it has to import its total cotton need of 3.5 to 4 million bales. With about 4 million workers engaged in the textile industry any supply shock leaves the sector tottering.
This calls for careful policy measures. For example, India adopted an intelligently crafted policy to support both its farmers and textile industry. When India banned cotton export, the commodity's price came down from as high as Rs 4,500 a quintal to Rs 2,500. This helped the Indian textile industry. At the same time, the government helped the farmers through agriculture price support.
Over the last three years, India has emerged as the major source of cotton for
Bangladesh, mainly because its cotton quality has improved, and the transport cost from India is cheaper than from any other foreign source.
Although the US has a huge surplus of over 10 million bales, freight charge and lead time for procurement are both higher with America. Moreover, Bangladeshi importers need to get their letters of credit confirmed by an international bank which costs 3-4 percent extra. With India this does not apply.
In future, Bangladesh's reliance on Indian cotton will increase if it wants to be a major player in textiles. So it is now felt that Bangladesh, using its good relationship with India, could negotiate with the neighbour so that India would guarantee a shipment of 3.5 to 4 million bales to Bangladesh.
And unless a supply chain is ensured, the unsettling scene in Bangladesh's textiles will continue.