The ban forced prices higher on the U.S. futures market the allowed daily limit of $0.04 per pound, but prices have since retreated.  Indian farmers complained of falling prices as buyers withdrew bids in expectation of still lower prices.  According to the U.S. Agricultural Attaché in India, about one-third of this year’s harvest remained in farmer’s hands when the export halt was announced.  If market prices fall below government support prices, the government-run Cotton Corporation of India will buy cotton to support farm prices, which have fallen 40 percent in the past year in anticipation of larger production after record high prices last year.  Lower farm prices could result in less cotton planting next year.

Trade Minister Anand Sharma appeared to completely reverse the ban, but then Trade Secretary Rahul Khullar said new export registrations won’t be accepted until the government completed a review of recent exports and applications, which should take about ten days.  A panel headed by Finance Minister Pranab Mukherjee will meet in two weeks to discuss the export situation.  About 2.8 million bales registered for export, but unshipped, appear to hang in the balance.

Concerns about exports to China are at the center of the current controversies, but the larger issues are how Indian cotton export data are released to the public and participants in trade and how the government makes decisions on trade policy.  Private market participants, particularly international traders, have previously complained about the inability to discern supply availability.  The confusion of the last ten days shows that all parts of the supply chain, especially farmers, are not included in the internal government fact and opinion gathering that should be part of a decision on halting exports.

The correct policy is to allow cotton exports to continue with no government bans on shipments.  For that to be a viable policy option, market participants (in country and internationally), government decision makers and other interested groups must have access to accurate data on the supply situation in the country.  This is not an insolvable problem.  The U.S. and other developed countries have worked on this issue for more than 50 years.  India is simply too important to global cotton trade for the current confusion to be allowed to continue.

Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology

(For original article, see here.)